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regular-article-logo Monday, 15 July 2024

US Federal Reserve officials keep policy rate unchanged, announce other plans to fight rapid inflation

Inflation slowed steadily in 2023, coming down enough that Fed officials entered 2024 expecting to cut interest rates three times this year

Jeanna Smialek New York Published 13.06.24, 10:26 AM
Fed chair Jerome Powell

Fed chair Jerome Powell

US Federal Reserve officials left interest rates unchanged in their June decision and predicted that they will cut borrowing costs just once before the end of 2024, a sign that they plan to be patient before turning a corner in their fight against rapid inflation.

Central bankers lifted interest rates rapidly between early 2022 and July 2023, pushing them up to a more than two-decade high of 5.3 per cent. They have held them steady since, hoping that higher borrowing costs will slow consumer and business demand enough to crush rapid price increases.

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Inflation slowed steadily in 2023, coming down enough that Fed officials entered 2024 expecting to cut interest rates three times this year. But then price increases proved surprisingly stubborn at the start of the year — and policymakers had to push back their plans for rate cuts, afraid of lowering borrowing costs too early.

Now that picture is in the process of changing again. Fresh Consumer Price Index inflation data released Wednesday reaffirmed that the early 2024 inflation stickiness was a speed bump rather than a change in the trend: price increases cooled notably in May. But it is getting too late in the year for the Fed to pull off the trio of rate cuts that they had expected as recently as March, the last time that policymakers released economic forecasts.

Officials predicted in their fresh forecasts on Wednesday that they will lower rates just once, to 5.1 per cent, before the end of 2024. Fed officials gave no clear hint as to when rate cuts will start. They meet four more times this year: In July, September, November and December.

Nifty record

Indian markets continued their good run, with the Nifty closing at a record high and the Sensex gaining 150 points as well. However, their momentum was moderated by the concerns of expensive valuations and participants awaiting the retail inflation number and the outcome of the meeting of the Federal Open Market Committee.

In a volatile session, the 30-share BSE Sensex finished with gains of 149.98 points at 76606.57 after receding from a day’s high of 77050.53.

On the NSE, the broader Nifty rose 177.1 points, or 0.76 per cent, to hit a new all-time intra-day peak of 23441.95. It later ended at a new closing high of 23322.95, up 58.10 points or 0.25 per cent.

Experts said investors have been indulging in profit booking at higher levels but they are also observing some intermittent buying.

“After opening on a positive note, the market continued to move up for the better part of the session. Intraday weakness in between has been used as a buying opportunity,” Nagaraj Shetti, senior technical research analyst at HDFC Securities, said.

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