Fed Flags End Of Rate Hikes, Sees Drop In Borrowing Costs In 2024

• After raising the policy rate by 5.25 percentage points since March of 2022, the central bank placed the policy rate on hold since July as inflation edges closer to its target. Simultaneously, the Fed signaled in new economic projections that the historic tightening of U.S. monetary policy engineered over the last two years is at an end, and lower borrowing costs are coming in 2024.
• In a new policy statement, U.S. central bank officials took explicit account of the fact that inflation "has eased over the past year," and said they would watch the economy to see if "any" additional rate hikes are needed. Implying directly that, after months of aggressive tightening and a bias towards moving rates higher, they may not need to raise them again.
• Powell also flagged the uncertainty of the outlook and said he couldn't definitively rule out higher rates at this point, even as officials looked toward a lower policy rate. He noted, "While we believe our policy rate is at or near its peak for the tightening cycle, the economy has surprised forecasters,"
• Considering the unpredictable nature of the economy, he said that while Fed officials "do not view it as likely to be appropriate to raise interest rates further, neither do they want to take the possibility off the table" if it's needed.
• However, Powell emphasised that the central bank believes it has done enough in terms of rate hikes. While Fed policymakers did not want to take another rate hike off the table, it is no longer the central bank's "base case". Therefore, while officials remain free to raise the Fed's benchmark overnight interest rate again in the coming months if inflation resurges, that seems increasingly unlikely given the recent performance of inflation that has edged steadily towards the central bank's target.
• The economic projections, as a whole, cling closely to the "soft landing" scenario that has become the base case for U.S. central bankers hoping that inflation continues to slow without a recession and sharp rise in unemployment.

 (Source: Reuters)