Topic: The US Federal Reserve has kept interest rates unchanged for the seventh time in a row. The dot matrix shows that interest rates will be cut only once this year
Federal Reserve officials believe that they will cut interest rates only once this year, two times less than what they predicted in March, because inflation is approaching the 2% target slower than they expected.
This is based on the new economic forecast released by the Federal Reserve on Wednesday at the end of the June 11-12 meeting. At the same time, it is widely expected that the Federal Reserve will decide to maintain the policy interest rate within the range of 5.25% - 5.5%.
According to the median forecast, the policy interest rate is expected to reach 4.1% by the end of 2025, which means that interest rates will be cut four times next year, each time by a quarter of a percentage point (25 basis points).
In March this year, when the Federal Reserve last released its quarterly forecast, most Federal Reserve governors predicted that the Federal Reserve would cut interest rates at least three times, 25 basis points each time, in 2024 and 2025. This will keep the policy interest rate at 3.75% - 4% by the end of next year.
Earlier this year, the inflation rate was higher than expected, forcing American interest rate setters to readjust. They began to slow down the pace of interest rate cuts when the economy performed better than expected to resist the constraints of high borrowing costs.
Data released on Wednesday showed that consumer prices did not rise month on month in May. It is unclear whether these data have affected their forecasts.
Since July last year, the Federal Reserve has kept its target for overnight inter-bank lending rates at the current range, with a view to squeezing high inflation out of the economy without seriously damaging the job market.
The latest forecast shows that four Fed policymakers believe that the Federal Reserve should not cut interest rates this year at all. Three months ago, only two policymakers thought so.
At the same time, seven policy makers believe that it is appropriate to cut interest rates once before the end of the year, while eight policy makers believe that it is necessary to cut interest rates twice.
Rethinking inflation
According to the year-on-year change of the price index of personal consumption expenditure (they set a target of 2%), policy makers now expect the inflation rate in the fourth quarter to be 2.6%.
According to the forecast, this is slightly higher than the 2.4% in March, although they expect the borrowing costs to remain high for a longer time. In the past two months, the inflation rate of personal consumption expenditure was 2.7%.
These forecasts are not unanimous, but the midpoint of the personal expectations of the seven directors of the Federal Reserve in Washington and the 12 governors of the Federal Reserve Bank, aiming to provide some guidance for policymakers.
According to the median forecast, the core PCE inflation rate (excluding food and energy costs, the Federal Reserve uses it to measure potential price pressure) will reach 2.8% in the fourth quarter of 2024 and 2.3% in the fourth quarter of 2025.
In contrast, the median forecast in March is 2.6% in 2024 and 2.2% in 2025.
The economic forecast shows that the Federal Reserve policymakers continue to expect the so-called soft landing, that is, economic slowdown and declining inflation, but the unemployment rate will not surge.
Policy makers of the Federal Reserve do believe that the unemployment rate, currently 4%, will rise to 4.2% by the end of 2025, higher than the 4.1% they predicted in March.
They maintained their forecast of US economic growth, which is 2.1% this year and 2.0% next year.
Federal Reserve policymakers also raised the expectation of long-term neutral interest rate to 2.8% from 2.6% in March and 2.5% in December last year. This increase may indicate that the Federal Reserve may not eventually cut interest rates as much as previously expected.
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Editor in charge: Yang Chunduan
