US Fed holds key rate steady, says March cut unlikely


COLD WATER

In its December rate meeting, the Fed raised its economic outlook for the year ahead and signalled it expects as many as three quarter-percentage-point rate cuts in 2024, sparking optimism in financial markets that the central bank could cut rates as soon as March.

When the Fed lowers interest rates, US consumers get cheaper access to credit, meaning the cost of everything from car loans to mortgages falls, while company valuations see a boost.

Heading into this meeting, traders and analysts were divided between those who believed the first rate cut would come in March and those who expected the Fed to tread more cautiously and move in May instead.

“We are not convinced the Committee will cut rates as soon as its next meeting on March 20 because it needs ‘greater confidence’ that inflation is moving back toward 2 per cent on a sustained basis,” Wells Fargo economists wrote in a note to clients after Powell’s remarks.

Futures traders, who have oscillated over a possible March cut in recent weeks, moved firmly away from such an eventuality, according to AFP analysis of CME Group data.

They are much more confident of a May cut, assigning a greater-than-90 per cent probability that the Fed will have a lower key lending rate by May 1 than it does now.

“There was nothing in the post-meeting statement that warrants a change to our forecast for the first rate cut to occur in May,” Oxford Economics chief US economist Ryan Sweet said in a note to clients Wednesday.



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