US interest rates held again after three months of disappointing inflation data

May 01, 2024

The US central bank, known as the Fed, has again kept interest rates high – at 5.25% to 5.5%.

It comes despite the bank signaling in January that interest rate cuts were around the corner.

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Progress in bringing down rates and making borrowing cheaper has been hampered by rising inflation in the US.

It could now be that US rates are only cut once in 2024, less than had been expected as high rates are deemed necessary to take money out of the economy and slow the pace of price rises.

A bumpy road to lower inflation

Data released last week showed inflation grew 3.5% in March, up from 3.2% in February and 3.1% in January – above the Fed’s inflation target and higher than economists expected.

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Inflation falls are not guaranteed Mr Powell said on Wednesday, “Further progress in bringing it down is not assured and the path forward is uncertain”.

More confidence that inflation is under control will be needed before policymakers move to cut due to recent inflation figures and gaining that confidence will take “longer than previously expected”, he added.

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In addition to the typical statement from the Fed in recent months it highlighted this concern: “In recent months, there has been a lack of further progress toward the Committee’s 2% objective.”

It signals that interest rates will remain higher for longer but another hike was said to be “unlikely” by Mr Powell.

“The committee does not expect it will be appropriate to reduce the target range [of interest rates] until it has gained greater confidence that inflation is moving sustainably toward 2%,” the Fed said.

A similar situation in the UK

Central banks in the UK, US, and EU are all aiming to bring inflation down to 2%.

The Bank of England faces a similar decision next week when it will announce its own interest rate decision.

Markets had been expecting a cut in May, but are now not expecting one until August, according to data from Refinitv.

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Unlike the UK, the US interest rate is a range rather than a single percentage – the Fed does not set a specific figure. Instead, the numbers are a target rate to guide lenders.

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