Fed keeps interest rates unchanged for the sixth time

The US Federal Reserve (Fed) on May 1 kept its reference interest rate at a 23-year peak, while denying the possibility of an interest rate hike.

On May 1, as expected by the market, the Fed decided not to raise interest rates after a two-day policy meeting. The reference interest rate in the US is currently around 5.25-5.5% - the highest level in 23 years. In the previous five meetings, this agency also kept interest rates unchanged.

The Fed has raised interest rates 11 times since March 2022 to curb inflation. US inflation slowed significantly from a 40-year peak in the summer of 2022, but recent figures show "a lack of improvement," according to the Fed's announcement.

"Inflation is too high and the cooling is not sustainable. It will probably take some time before we are more confident in this process," Fed Chairman Jerome Powell said at a press conference on May 1.

The personal consumption expenditures (PCE) price index was 2.7% in March - up from 2.5% in February. The Fed's target is 2%.

Fed Chairman Jerome Powell at a press conference on May 1. Photo: Reuters — Fed Chairman Jerome Powell at a press conference on May 1. Photo: *Reuters*

Stocks moved in opposite directions after Powell announced that there was "no possibility" of further interest rate hikes. The DJIA closed up 0.2% on May 1. Meanwhile, the S&P 500 and Nasdaq Composite both fell 0.3%. The world spot gold price increased by more than 30 USD to 2,317 USD per ounce.

The Fed also announced that it would ease restrictions on the economy by slowing the shrinkage of its balance sheet. In addition to interest rates, this is also a tool to help them stimulate or cool the economy. Accordingly, from June, the Fed will let $25 billion in government bonds mature each month without buying them back. Previously, this number was $60 billion.

Powell said at the press conference that there were several scenarios that could lead to a rate cut, including a return of inflation as the economy and job market stabilized, a scenario that played out last year.

The US job market remains solid overall. The unemployment rate is below 4% and businesses are hiring aggressively. The April jobs report will be released on May 3.

Powell expects the economy and inflation to cool in the second half of the year as pandemic savings shrink. But persistent inflation is dragging down forecasts for when the Fed will start cutting rates. JPMorgan and Goldman Sachs expect the first cut in July. Wells Fargo is betting on September, and Bank of America believes the Fed won’t act until December.

Currently, according to the CME FedWatch interest rate tracker, the market is betting on November.

Powell is waiting for other data to cool, such as rents. He also asserted that the economy is not in stagflation — high inflation coupled with slow growth.

Ha Thu (according to CNN, Reuters)

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