The RFederal Reserve (Fed, central bank) USA kept this Wednesday its reference interest rate in a range of 5.25-5.50%and reported which maintains the expectation of making three cuts in the year.
Maintaining high rates allows members of the Monetary Policy Committee (FOMC) to “carefully evaluate incoming data, the evolution of the outlook, and the balance of risks,” the organization said in a statement after two days of meeting.
The president of the Fed, Jerome Powellhe reiterated in a press conference this Wednesday that inflation in the United States continues to be “too high.”
And although the rise in prices was contained and the labor market remains strong, “Current efforts to lower” this inflation “are no guarantee of success”he qualified cautiously.
Inflation has moderated within the framework of the high-rate monetary policy promoted by the Fed for the world's largest economy.
High rates make credit more expensive and thus discourage consumption and investment, which reduces pressure on prices.
How is inflation in the United States?
Inflation in the United States It reached 9.1% in June 2022 and the decrease in the index within the framework of the restrictive monetary policy adopted by the central bank did not lead the economy to a recession or a relevant increase in unemployment.
Since these highs, the PCE inflation index, which is the one most followed by the Fed, has moderated to 2.4% in the 12-month measurement in January, compared to 2.6% in the December data.
However, this year, inflation has gained a small boost and the market feared that the central bank would reduce its expectation of interest rate cuts, which ultimately did not happen.
What's next for rates and what do the experts say?
FOMC members maintained their forecasts for headline inflation but raised their forecast for core inflation, which excludes volatile food and energy prices, to 2.6%.
In any case, they do not foresee changes in the projection for interest rates for the end of 2024 in a range of 4.50-4.75%.
This means they expect to reduce rates by 0.75 percentage points in total for the remainder of the year.
In December, The Fed's idea of making three cuts in 2024 raised great expectations in the markets, who evaluated that a first drop could occur in March.
But in the following months, the central bank's own officials used public appearances to warn that too rapid movements in rates could threaten the gains made on inflation.
Now the markets expect cuts only from June, or even later.
Futures brokers assign a 65 percent probability to a first cut in June. The percentage rises to 80% probability that a first decline will have already occurred by the end of July, according to data from CME Group.
In a note to investors, Goldman Sachs economists lowered their expectation of reductions for this year from four to three“mainly due to the slightly higher path that inflation took” in the first days of 2024.
The Federal Reserve also offered its forecasts for the United States economy this Wednesday.
The agency revised upwards its GDP growth forecast to 2.1% for 2024.
The unemployment rate, meanwhile, will rise less than the Fed expected, to 4% this year and 4.1% next year.
The effects that this decision had on the market
Wall Street closed this Wednesday with records in its three main indicatorsencouraged by the future interest rate cuts suggested for this year by the Federal Reserve.
At the end of the session in the New York Stock Exchange, Dow Jones rose 1.03%, to a historical maximum of 39,512 points, and the S&P 500 It advanced 0.89% and exceeded 5,200 integers for the first time, up to 5,224.
Investors are relieved that there are three cuts to the plans, which has strengthened markets and risk appetite
The index Nasdaq, which brings together the large technology companies, grew by 1.25%, up to 16,369 units, and also marked a milestone.
According to analysts, the last time a triple record was recorded on Wall Street was on November 8, 2021.
Meanwhile, the yield on 10-year Treasury bonds fell as this monetary policy outlook was confirmed, and at the close of the day it was at 4.285%.
“Investors are relieved that there are three cuts to the plans, which has strengthened markets and risk appetite,” David Russell, global head of strategy at TradeStation, told CNBC.
By sectors, Profits predominated, especially from non-essential goods (1.45%), communications (1.26%) and financial (1.24%) companies, and the most affected were healthcare companies (-0.23% ).
Among the 30 listed companies in the Dow Jones, the increases in B stood outoeing (3.69%), American Express (2.79%) and 3M (2.64%), and only Chevron (1.40%) and Johnson & Johnson (-0.31%) fell.
Intel rose 0.36% after learning that the US Government will give it a subsidy of $8.5 billion in direct financing and another $11 billion in loans to boost chip manufacturing.
In addition, Texas oil fell to $81.68 per barrel, and at the close of the stock market gold rose to $2,187 per ounce and the dollar depreciated against the euro (1.092).
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