The US Federal Reserve kept interest rates unchanged on Wednesday for the seventh time in a row.
Interest rates in the world’s largest economy remained at 5.25% and 5.5%.
The central bank’s Monetary Policy Committee revised its growth forecasts for 2024 and 2025 to 2.6% and 2.3%, respectively, indicating “modest additional progress” to achieve the 2% inflation target.
Today, the FOMC decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings. We are maintaining our restrictive stance on monetary policy in order to keep demand in line with supply and reduce inflationary pressures.
Jerome Powell, Chair of the Federal Reserve
Expectations for future GDP growth remained similar to those issued in March, i.e. 2.1% for 2024 and 2.0% for 2025.
On the other hand, Federal Reserve Chairman Jerome Powell said today that bank officials’ expectations regarding inflation are “conservative” in nature. Speaking after the Federal Open Market Committee meeting, he added that expectations may not be confirmed by upcoming data and are subject to adjustment.
“The most recent inflation readings have been more favourable than earlier in the year, however, and there has been modest further progress toward our inflation objective,” said Powell. We will need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%.”
Inflation cools
US inflation fell to 3.3% in May, prompting investors to adjust their expectations regarding lowering interest rates.
This data led to rising stock futures and falling Treasury yields, which were slightly below economists’ expectations.
According to LSEG data, traders now expect two interest rate cuts this year, with the headline consumer price index rising by 3.3% compared to Reuters‘ expectations of 3.4%.
Investors were betting on an 84% probability of a rate cut before the presidential election this year, compared to 60% previously. US President Joe Biden praised the strong labour market and low inflation in his attempt to convince voters of his economic record before next November’s elections.
These shifts indicate growing optimism among investors that the US economy can recover more quickly, which contributes to the stability of financial markets and enhances confidence in the current administration’s economic policies.
UAE Central Bank maintains interest rate steadyÂ
Shortly after the Fed’s announcement, the Central Bank of the UAE (CBUAE) said it has decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) at 5.40%.
“The CBUAE has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the Base Rate for all standing credit facilities,” the bank said in a statement.
“The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE.”
