FX.co ★ US Fed grapples with key rate decision

The issue of the key interest rate has once again become a sore point for the US Federal Reserve. Led by Fed chair Jerome Powell, the best American economists have long grappled with this task. The US monetary authorities continue to ponder whether the interest rate should be increased or not. Recently, the Fed chief has stated that there should be no rush to reduce the interest rate. The reason is the anticipation of additional economic data that may confirm a decrease in inflation to the 2% target. According to Jerome Powell, the fight against inflation is not yet over, and positive semi-annual economic indicators do not truly signal the direction in which inflation is heading. It is expected that the Fed’s monetary policy changes will be revealed at the upcoming meeting scheduled for March 19 and 20. At the same time, Powell hinted that the first reduction in the key rate might be possible in mid-2024. "However, all but a couple of our participants do believe it will be appropriate to, for us to begin to dial back the restrictive stance by cutting rates this year. And so, it is certainly the base case that, that we will do that. We're just trying to pick the right time, given the overall context," the Fed chair pinpointed. However, last week, Powell claimed that a rate cut in the first quarter is unlikely. Following the comments from the Fed head, the yield on US Treasury bonds sharply decreased. The reason is the disappointment of bond investors who had previously hoped for a quick rate cut. At the end of 2023, inflation in the US slowed to 2.6%. This was much lower than the peak of 7.1% recorded in mid-2022. Meanwhile, the US labor market remains strong. In January 2024, unemployment stayed at a low level of 3.7%, and the labor market added 353,000 jobs.