(qlmbusinessnews.com Thurs. 1st Aug, 2024) London, UK —
“Fed Holds Rates Steady Amidst Growing Calls for Cuts”
The US central bank has maintained its key interest rate at a 23-year high, as anticipated, while hinting at potential rate cuts in the near future. The Federal Reserve stated that its efforts to stabilise prices had shown “some” progress, noting that job gains had “moderated” and unemployment was on the rise.
However, officials deemed it appropriate to keep the target for the Fed‘s key rate within the range of 5.25%-5.5%, a level it has held since last July. The Fed's strategy of maintaining high borrowing costs aims to slow down the economy and control price inflation.
Despite these efforts, the bank is under increasing pressure to reduce rates as inflation decreases and the job market cools. The Fed's decisions are being closely monitored globally, with several central banks facing similar challenges. Some, such as the Bank of Canada and the European Central Bank, have already implemented rate cuts. Investors are divided on the actions the Bank of England will take at its upcoming meeting.
In the US, many investors anticipate a rate cut as early as September. Analysts noted that the Fed's latest announcement reflected greater concern for the job market compared to the last meeting in June, indicating that officials might opt for a cut in the coming months.
“While they are not quite there yet – and still need ‘greater confidence' – this feels like a signal that they believe the data will evolve to justify the first cut in September,” said Brian Coulton, chief economist at Fitch Ratings.
The Fed‘s actions are further complicated by the upcoming presidential election. Analysts suggest that a rate cut before the November vote could benefit Democrats, providing relief to households and businesses through lower borrowing costs for homes, cars, credit cards, and other loans. Republican candidate Donald Trump has already claimed that such a move would be politically motivated and compromise the bank's independence.
However, some analysts caution that the Fed cannot afford to delay, as high borrowing costs could stifle economic growth and trigger a severe downturn. Matthew Morgan, head of fixed income at Jupiter Asset Management, warned that waiting for clarity on unemployment and inflation before cutting rates could be a mistake.
“If the Fed waits until it has clarity on unemployment and inflation before cutting rates, it will be too late,” he said. “The balance of risks today already suggests it’s time to get on with it.”
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