Fed holds rates steady, projects one rate cut this year

The Federal Reserve opted to hold rates steady between 5.25% and 5.5% on Wednesday, continuing the 23-year high. It also revised the outlook for rate cuts in 2024 to just one from an earlier forecast of three in March.

Reasons behind the decision
Fed Chair Jerome Powell stated in a press conference, that despite inflation easing from a peak of 7% to 2.7%, the Central Bank still lacks the confidence to lower rates.

He also noted that the Fed’s restrictive policy is working, but it is too early to determine if it is sufficient enough to achieve the long-term goal of maintaining US inflation under 2%.

The decision follows data from the Labor Department indicating stable consumer prices from April to May, with a modest annual increase of 3.3%, which was below Wall Street’s estimates (something that gave economists a positive vibe). Core prices, excluding volatile food and energy costs, also rose at their slowest pace since 2021, beating expectations.

Recent stronger-than-expected job data of 272,000 openings in May, up from 165,000 in April also played a role in the Fed’s decision yesterday.

The stock market gained following the Fed’s announcement. The S&P 500 and Nasdaq Composite rose by about 1% and 1.8%, respectively, while the Dow Jones Industrial Average gained around 32 points.