US Fed opens meeting with rate cut seen as unlikely

WASHINGTON, April 30 — The US Federal Reserve started its two-day policy meeting today, with the central bank widely expected to hold interest rates steady to curb stubborn inflation.

The Fed has for months maintained its benchmark lending rate at a 23-year high to slow demand and rein in price increases, but inflation remains above policymakers’ long-term target of two per cent.

As hope dwindles for rate cuts in the first half of the year, the Fed also faces a growing chance reductions coincide with the run-up to November’s presidential election — boosting the economy at a time when Democrats and Republicans vie to win over voters on economic and other issues.

The converging timeline could prove uncomfortable given that the Fed, as the independent US central bank, seeks to avoid appearances of politicisation.

For now, analysts expect the rate-setting Federal Open Market Committee to hold rates at the level of 5.25 per cent to 5.50 per cent on Wednesday.

“Fed communication in recent weeks has had a decidedly hawkish lean,” said EY chief economist Gregory Daco in a note this week, citing uncertainty over inflation.

All eyes will be on Fed Chair Jerome Powell’s press conference after the meeting, as observers look for hints on when officials could begin to lower rates.

High bar for hike

The US economy has proven more resilient than anticipated in the face of high interest rates, pouring cold water on hopes of an earlier start to reductions.

With Powell signaling the Fed should allow restrictive policy more time to work and “a clear majority of policymakers favouring two or fewer rate cuts,” Daco expects just two cuts this year.

KPMG chief economist Diane Swonk added in a recent note: “Some have even argued that no rate cuts may come in 2024, which raises the question of whether the Fed has reached a peak in rates.”

A key element to watch will be how Powell responds to questions on potential rate hikes.

Investors will be monitoring if Powell reiterates that policymakers believe the rate “is likely at its peak” for now and that it “will be appropriate to ease policy at some point this year,” Daco added.

Analysts expect the bar will be high for a rate hike.

Markets are almost certain that the Fed will leave interest rates unchanged this time.

Futures traders assigned a probability of less than 5.0 per cent for a rate cut, according to CME Group data as of this morning.

Traders do not appear to see a significant chance of a rate cut until the Fed’s September meeting, data shows. — AFP