US Fed leaves interest rates unchanged at 5.5%

May 01, 2024 (MLN): The US Federal Reserve decided to leave interest rates unchanged at 5.25%-5.5% for the sixth consecutive meeting.

The Federal Open Market Committee (FOMC) in a statement issued on Wednesday said that inflation has eased over the past year but remains elevated.

“In recent months, there has been a lack of further progress toward the Committee’s 2% inflation objective," it said.

The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%, the statement reads.

Policymakers have kept interest rates at a 23 year-high since July last year, maintaining a cautious approach before considering any rate adjustments.

The decision came in line with the market expectations, wherein the consensus was that of a rate pause.

Meanwhile, the Federal Reserve said that it will slow its pace of quantitative tightening starting June 01.

This includes reducing the cap on Treasury securities rolling off the balance sheet by more than half, to $25 billion each month, down from $60bn.

However, it maintained the pace of runoff for mortgage-backed securities at $35bn per month.

Market expectations of the interest rate tragectory for 2024 remained little changed following the FOMC decision.

Market is divided on a cut by September, with 50/50 odds. While only one rate cut is fully priced in this year.

To note, at the start of this year, market was pricing in an 80% chance of a rate cut starting March and a total of six cuts in 2024.

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