The Fed increased the policy rate to the range of 4.75-5%, the highest level of the last 16 years, after the collapse of 3 banks in the country and the process in which the expectations in the markets were turned upside down.
The use of the phrase “some additional tightening” would be appropriate in order to achieve a tight enough monetary policy stance to return inflation to 2 percent, instead of the phrase “expected to continue tightening” in the text of the resolution, was perceived as a dove in the markets.
In the statement, it was noted that the cumulative tightening in monetary policy, the delays in the effect of monetary policy on economic activity and inflation, economic and financial developments will be taken into account when determining the pace of interest rate increases, and it was emphasized that the US banking system is “solid and resilient”.
Even though the fact that the inflation pressure did not come to the fore in the Fed’s projections for the economy as much as feared, strengthened the estimations that the end of the interest rate increases, Fed Chairman Powell’s statements showed that uncertainties regarding the future period may have an impact on pricing for a while.
Year-end interest rate expectations remained the same
Announcing its forecasts for the economy, the Fed did not change its forecasts for the federal funds rate for this year.
Forecasts for the federal funds rate were left at 5.1 percent for the end of this year, while for 2024 it was increased from 4.1 percent to 4.3 percent. The bank kept its forecast for the federal funds rate at 3.1 percent for 2025. The long-term average interest rate expectation was kept at 2.5 percent.
The bank’s inflation forecasts were increased from 3.1 percent to 3.3 percent this year, while maintaining 2.5 percent for 2024 and 2.1 percent for 2025. Estimates for core inflation, which does not include variable energy and food prices, were raised from 3.5 percent to 3.6 percent this year and from 2.5 percent to 2.6 percent next year, while 2 percent for 2025. Kept at 1.
Analysts stated that it is predicted that the Fed will start 25 basis points of interest rate cuts as of the June meeting in the pricing of money markets, and stated that although the question regarding this situation was answered negatively by Fed Chairman Powell yesterday, the pricing continues.
Answering questions after the meeting, Powell said, “Members do not have such a foresight.” replied in the form.
The growth forecast of the US economy was reduced from 0.5 percent to 0.4 percent this year and from 1.6 percent to 1.2 percent for next year, from 1.8 percent to 1 percent for 2025. increased to 9.
Analysts noted that the deceleration trend in the US economy was not at the level expected by the Fed, but stated that the concerns about the banking sector might have narrowed the Fed’s policy area.
Analysts pointed out that the expectations for the Fed’s steps were quite scattered before the meeting, and stated that most of these uncertainties continued after the meeting.
