US interest rates are to be cut just once this year, according to updated forecasts from its central bank.
The cost of US borrowing was kept at a more than 20-year high despite news on Wednesday that inflation, the rate of price rises, fell to the lowest level in more than three years at 3.4%.
The Federal Reserve published new guidance from its interest rate-setting committee, which expects just one rate cut this year. Just three months ago, three cuts were anticipated.
More evidence of falling inflation is needed before cuts come, the Fed said, as unemployment remained low.
That could change and rates could be brought down if unemployment quickly ticks up, Fed chair Jerome Powell said.
Rates have been brought up by central banks across the world to bring down inflation, which soared after pandemic-era supply chain woes and the energy price shock after Russia’s invasion of Ukraine.
Comparison to the UK
While the UK’s interest rate-setters at the Bank of England don’t give rate forecasts like the US, market expectations are for three rate cuts this year, according to Refinitiv market data.
The first of those cuts is currently expected to be in September. It was previously hoped the first cut in more than four years would happen in May – but interest rates were held at 5.25%.
Unlike the UK, the US interest rate is a range – currently 5.25% to 5.5% – rather than a single percentage. The Fed does not set a specific figure.
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The impact of the news on markets has been minimal after strong gains followed the inflation figures earlier on Wednesday.
US stock market indexes the NASDAQ and S&P 500 all remained elevated following the inflation figures.
Sterling got a boost from the inflation data, with a pound equalling $1.2799.