In a widely anticipated move, the US Federal Reserve kept interest rates unchanged on Wednesday. However, policymakers indicated that they still expect rates to come down by three-quarters of a percentage point by the end of 2024.
The Fed’s policy statement said inflation remained “elevated”.
“The committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The economic outlook is uncertain, and the committee remains highly attentive to inflation risks,” the statement said.
Federal Reserve policymakers were widely anticipated to declare their intention to maintain US interest rates at a two-decade high, given the ongoing surge in inflation and housing costs. This interest rate range, currently set between 5 percent and 5.25 percent, was established last July following robust monetary tightening in response to inflation reaching a 40-year peak.
Market expectations earlier suggested that the Fed will announce its initial rate reduction of the year in June. Initially, in December, the Fed had forecasted a total of three cuts for the year. However, concerns had arisen that policymakers might revise this projection downward to only two cuts, or even postpone the first cut altogether, due to recent reports indicating that inflation is proving more persistent than previously anticipated.
Read: Gold prices in the UAE rise ahead of key Fed decision
GCC central banks
Following the Fed’s announcement, the UAE Central Bank said it will maintain its base rate as well.
“The Central Bank has decided to maintain the base rate applicable to the overnight deposit facility (ODF) without change at 5.40 percent,” it said on social media platform X.
Other GCC central banks are also expected to keep their interest rates in line with the Fed’s decision. Currencies in several GCC countries are pegged directly to the US dollar.
Inflation remains sticky
US inflation continues to hover at elevated levels. A recent report from the US government revealed a substantial increase in consumer prices from January to February, surpassing levels consistent with the Fed’s target. This underscores ongoing inflationary pressures within the economy, which may not ease in the coming months as swiftly as desired by the Fed.
The Labor Department’s report indicated a 0.6 percent rise in its producer price index from January to February, up from the previous month’s 0.3 percent increase. On a year-over-year basis, producer prices surged by 1.6 percent in February, marking the highest increase since last September.
Another report highlighted unexpectedly high wholesale inflation, suggesting that inflationary pressures in the supply chain could contribute to sustained consumer price hikes in the near future.
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