U.S. Fed Reserve Holds Interest Rate Unchanged, Signals Rate Cuts in 2024

The U.S. Federal Reserve has decided to maintain a key interest rate of 5.38 percent for the third consecutive time to fight spiraling inflation. However, the Fed”s policymakers have taken a dovish stand, signaling rate cuts by the end of the next year. In the current scenario, where the inflation rate is at 3.10 and the economy is showing exuberance, a high borrowing rate is inevitable, they said.

In its first relief gesture provided after 2021, when inflation spiked significantly, the Fed said, “Inflation has eased over the past year but remains elevated.”  At 5.38 percent, the current interest rate is 22 years high, facilitating higher costs for mortgages, auto loans, business borrowing, and many other forms of credit, which in turn affect home sales and associated businesses.

Experts believe the central bank has ensured a soft landing by reducing inflation without much dent, as the employment rate is still high, and the manufacturing PMI is at 46.7. However, inflation still remains above the Fed Officials target of 2%, particularly in health care, apartment rents, restaurant meals, and other services, and remains persistently high, prompting the Fed Reserve to create room for further hikes if needed.

Fed officials expect a soft landing with inflation declining to 2% without any serious harm to the economy. However, in the event of any significant slowdown, the U.S. central bank may be urged to make a considerable slash in the interest rate. Fed reserve officials envision “core” inflation declining to just 2.4% and unemployment rising to 4.1% from the current rate of 3.7% by the end of 2024.

The economy is expected to grow by 1.4% next year and 1.8% in 2025. On the back of the Fed”s dovish signal, the stock markets around the world performed well, with Indian benchmark indices Nifty and Sensex witnessing a significant surge of 1.15% and 1.24%, respectively.