Fed announced its interest rate decision, signaled a reduction for this year

The US Federal Reserve (Fed) announced its eagerly awaited interest rate decision. In line with expectations, the Fed kept the policy rate unchanged at the highest level in 23 years. While the inflation forecast increased, the expectation of a rate cut for this year decreased from 3 to 1. Speaking after the decision, Chairman Powell said that they viewed the inflation data announced today as "progress" but did not think they had the confidence to start easing monetary policy. The US Federal Reserve kept the policy rate unchanged at its June meeting in the range of 5.25-5.50 percent. The bank signaled only one cut this year and more cuts in 2025. The interest rate decision was taken unanimously. The statement stated that the committee believed that the risks to achieving employment and inflation targets had moved towards a better balance last year, and noted that the economic outlook was uncertain and that extreme caution would continue against inflation risks. The decision text stated that economic activity and the labor market were strong. The Fed raised its forecast for the federal funds rate to 5.1% from 4.6% for the end of this year. The Fed’s forecast for the federal funds rate was raised from 3.9% to 4.1% for 2025, while it was left at 3.1% for 2026. The forecasts indicated that the Fed foresees one interest rate cut of 25 basis points in 2024. The bank had signaled in its forecasts published in March that it would cut interest rates by a total of 75 basis points this year. Inflation forecast increased Inflation forecasts were raised from 2.4% to 2.6% for this year, from 2.2% to 2.3% for 2025, and held steady at 2% for 2026. The core inflation expectation for 2024 increased from 2.6 percent in March to 2.8 percent, and the expectation for 2025 increased from 2.2 percent to 2.3 percent. It was maintained at 2 percent for 2026. The projections showed that 4 members did not expect an interest rate cut this year, 7 members expected one cut, and 8 members expected two cuts. The 2024 growth expectation remained at 2.1 percent, and the unemployment rate expectation remained at 4 percent. The discourse on inflation changed in the decision text, and it was stated that “moderate progress has been made towards the 2 percent target in recent months.” The Fed did not change interest rates at the meeting in May, but reported that inflation had not made progress towards the target in recent months. Inflation slowed down in April and May. The Fed has increased interest rates 11 times since March 2022 as part of the fight against high inflation, and interest rates have reached their highest level since 2001. Statements from Chairman Powell After the decision, Fed Chairman Jerome Powell stood in front of the cameras. Powell said that inflation, although slowing down in recent months compared to the beginning of the year, was still very high and that they continued their tight monetary policy stance. The highlights of Powell's speech are as follows; “Unemployment is still low at 4 percent. Inflation is still above our target. The data at the beginning of this year exceeded expectations, but we see it slowing down in recent months. Our expectations still seem anchored. The outlook for the economy is still uncertain. We are extremely careful about inflation risks. We need to wait a little longer to reach the 2 percent target. We see today's inflation data as progress, but it was not reassuring enough to immediately start a discount cycle. We need to see more good data to gain confidence.”