Volkswacht Bodensee - US Fed holds rates and pencils in just one cut this year

The Fed voted unanimously to maintain its benchmark interest rate between 5.25 and 5.50 percent, and said in a statement that "modest" progress had been made toward its long-term inflation target of two percent.

The announcement suggests that central bank officials remain wary about cutting rates too soon, despite consumer inflation data published earlier Wednesday, which pointed to a slowdown in the rate of price increases in May.

The annual consumer price index (CPI) came in at 3.3 percent last month, down 0.1 percentage point from April and unchanged on a monthly basis, the Labor Department said. This was slightly below expectations.

"Prices are still too high, but today's report shows welcome progress on lowering inflation," President Joe Biden said in a statement after the inflation data were published.

The Republican Party, which is challenging the Democrats in November's elections, took a longer-term view of inflation, writing on X that "prices have now risen by 20.1 percent since Biden took office."

- Just one cut -

Alongside its interest rate decision, the Fed also updated economic forecasts from the members of its rate-setting Federal Open Market Committee (FOMC).

Policymakers lowered their individual forecasts for the number of rate cuts they expect this year, reducing the median projection for interest rates at end-2024 to the midpoint between 5.00 and 5.25 percent.

This means that FOMC participants only expect one 0.25 percentage point cut before year-end, two less than in the last update in March.

FOMC participants penciled in a median of four quarter percentage-point cuts for next year, and an additional four in 2026.

Ahead of Wednesday's decision, many analysts had been expecting two cuts for this year.

"We continue to expect the first rate cut in September," Goldman Sachs chief economist David Mericle wrote in a note to clients published on Sunday, adding they expected the Fed to move twice this year.

But other analysts, including economists at EY and Barclays, expect the updated forecasts to show a median figure of just one rate cut for 2024.

"We think it's probably going to be more out towards the end of the year," Dan North from Allianz told AFP ahead of the Fed's decision, adding that he expects the first rate cut to come only in December.

"Inflation just seems like it's really sticky, and it's putting up quite a fight," he continued, adding that the Fed "always waits too long" before starting to cut rates.

In their economic forecasts, Fed officials also raised the median forecast for headline inflation this year to 2.6 percent, up 0.2 percentage points, and kept their growth outlook unchanged at 2.1 percent.

Following Wednesday's inflation data, futures traders raised their expectations of an interest rate cut by mid-September to more than 70 percent, before dialing it back slightly following the Fed's rate decision, according to data from CME Group.

F.Mueller--VB