12 June 2024
If you are covering the Federal Reserve’s decision to hold interest rates, please see the following comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“With the US stuck in a holding pattern, waiting for either inflation to fall more quickly towards its 2% target or for the economy to buckle under the strain, the Federal Reserve has once again opted to keep rates on hold.
“This morning’s inflation print showed that though inflation declined, it fell only marginally and remains too hot to allow for a rate cut just yet. Nonetheless, markets have continued to speculate on when the first rate cut will materialise. The Fed’s latest dot plot has helped paint a clearer picture of the expected path ahead for the remainder of this year, with just one cut now anticipated before the end of 2024 down from three previously.
“There remain a great deal of unknowns for the Fed, and it will continue to keep a close eye on the data ahead of its next FOMC meeting. For now, GDP growth is weakening, inflation has a way to go before it hits target, and the labour market is showing mixed signals, so its decision-making process is unlikely to be made easier any time soon. What’s more, the upcoming election campaign could further affect the Fed’s thinking, though history suggests that if the economy were to demand it, the Fed would continue to act regardless.
"Ultimately, though the Fed still appears to be heading closer to its first rate cut, it will no doubt tread carefully for fear of cutting too much too quickly which could prove disastrous. The European Central Bank might have fired the starting gun last week but the Fed has not been so quick off the mark, and the Bank of England is unlikely to be either."
