Fed Holds Rates Steady as Wall Street Moves First Rate Cut Expectations to June 2024

The US Federal Reserve yesterday unanimously agreed to hold its policy rate at 5.25%-5.50%, while addressing that it is still a long way for inflation to achieve a sustainable level of 2%.

It was a second consecutive pause by the US central bank after 11 successive rate hikes since last year.

Fed Chair Jerome Powell said that the process of getting inflation sustainably down to 2% has a long way to go. As for the next meeting in December, the committee will do what it thinks is appropriate at the time.

The overall tone was encouraging, but the Fed always wants to see better results. Inflation is cooling, but needs to cool more. Wage inflation showed signs of cooling as well, while labour market supply to demand balance improved, but needs to improve more.

In addition, Powell noted that the committee was not considering or even discussing rate reductions at this time, but stated that the risks around the Fed doing too much or too little to combat inflation have become more balanced.

The market is now pricing in a first rate cut by June next year at around 50% chance, up from mid 30% yesterday. Before the Fed announcement, the highest odds for a rate cut was around 35% in July, according to CME FedWatch Tool.