The Federal Reserve kept interest rates unchanged, and policymakers expect only one rate cut this year

Forex Platform- The Federal Reserve kept interest rates unchanged on Wednesday (2:00 a.m. local time on June 13, early Thursday morning Beijing time) and pushed back the start of rate cuts to December, with policymakers expecting only one rate cut this year, by 25 basis points, arguing that more constraints on the economy are needed to bring inflation under control.

Fed policymakers slashed expectations for three rate cuts of 25 basis points each from March, although its new policy statement acknowledged "modest further progress" toward its 2% inflation target - an improvement on the language in its May 1 statement. The new forecast may rule out a rate cut before the US Presidential Election on November 5.

At the same time, the Federal Reserve raised its estimate of the long-term or "neutral" interest rate from 2.6% to 2.8%, suggesting that policymakers believe that more constraints on the economy are needed to win the inflation fight.

The recent progress in de-inflation has been slow, and Federal Reserve policymakers now expect inflation to end the year at 2.6%, slightly higher than the 2.4% expected in March.

After the statement and the latest forecast were released, interest rate futures traders continued to expect the Federal Reserve to begin easing policy in September, with the possibility of a second rate cut before the end of the year.

"The market is more concerned than the economy about whether to cut rates twice this year or just once," said Brian Jacobsen, chief economist at Annex Wealth Management, as the Fed largely rescheduled its rate cuts.

Although it now appears that this year's rate cuts may start later and slower than investors expected, policy rates will fall rapidly next year, by a full percentage point in both 2025 and 2026.

The new statement and the Summary of Economic Projections show that Fed policymakers are debating how to respond to recent data, which many see as suggesting a slowdown in inflation but also a stabilizing economy and job growth. Data released on Wednesday showed that consumer prices were flat in May from a month earlier.

The new forecast shows that despite the sluggish economy in Quarter 1, economic growth is still expected to reach 2.1% this year, above trend, and the unemployment rate will remain at the current level of 4%.

"Recent indicators suggest that economic activity continues to expand at a solid pace. Job growth remains strong and unemployment remains low," the statement said. Policymakers agreed with Wednesday's decision.

Inflation made little progress in the first few months of the year, so according to the "dot plot," almost all policymakers have raised their estimates of the level of interest rates needed to win the inflation fight.

Combined with the recent debate over the possibility that the neutral rate could be higher than expected, the new dot plot suggests that policymakers have concluded that they need to keep rates high for longer to keep inflation in check. Policymakers now estimate that the neutral rate is more than 25 basis points higher than it was at the end of 2023, having raised their estimates in March.

The full text of the statement of the Federal Reserve's monetary policy meeting on June 11-12

The following is the full text of the statement issued by the Federal Reserve Board (Federal Reserve) following its June 11-12 monetary policy meeting:

Recent economic indicators suggest that economic activity continues to expand at a steady pace. Job growth remains strong, and unemployment remains low. Inflation has slowed over the past year, but remains high. In recent months, there has been modest further progress toward meeting the Committee's 2 percent inflation objective.

The Committee seeks to achieve full employment and its longer-term inflation objective of 2 per cent. The Committee believes that the risks to achieving the employment and inflation objectives have tended to be better balanced over the past year. The economic outlook is uncertain and the Committee remains highly concerned about inflation risks.

In support of these objectives, the Committee decided to maintain the target range for the federal funds rate at 5.25% -5.5%. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully evaluate the newly released data, the evolving outlook, and the balance of risks. The Committee does not expect to lower the target range until it becomes more confident that inflation will continue to decline toward 2%. In addition, the Committee will continue to reduce its holdings of U.S. Treasuries, agency bonds, and agency mortgage-backed securities (MBS). The Committee is strongly committed to returning inflation to its 2% objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the impact of newly released information on the economic outlook. The Committee will be prepared to adjust the stance of monetary policy as appropriate in the event of risks that could impede the achievement of the Committee's objectives. The Committee's assessment will take into account a wide range of information, including indicators of labor market conditions, inflation pressures and inflation expectations, as well as financial and international developments.