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Interest Rates Hold Firm as Fed Evaluates Economic Growth

Daniel Kim Views  

The U.S. has once again frozen its benchmark interest rate. The U.S. Federal Reserve (Fed) announced on the 12th (local time) that it unanimously decided to maintain the benchmark interest rate at its current level following the regular meeting of the Federal Open Market Committee (FOMC).

The Fed, which had aggressively raised interest rates until July of last year, has maintained the highest level of interest rates since 2001 by freezing rates for the seventh consecutive time since September of the same year.

Due to the Fed’s freeze on the benchmark interest rate, the interest rate gap with South Korea (annual 3.50%) also remains at a record high of up to 2% points.

The Fed assessed, “According to recent indicators, economic activity is expanding at a solid pace and employment is also robust,” adding, “Prices are still rising, but there is gradual progress towards the committee’s goal of a 2% inflation rate according to recent indicators.”

The Fed also predicted the interest rate level at the end of this year to be 5.1% through a separate dot plot, signaling only one rate cut within the year. The FOMC predicted the year-end interest rate to be 4.6% after the March meeting, forecasting a total of three interest rate cuts.

Additionally, 7 out of 19 participants predicted one rate cut, 4 foresaw no rate cuts this year, and 8 anticipated two rate cuts.

The Fed predicted that by the end of 2025, the U.S. interest rate would reach 4.1%, which is slightly higher than the March forecast (3.9%). Just before the interest rate announcement, the U.S. Department of Labor reported that the Consumer Price Index (CPI) in May increased by 3.3% compared to the same month last year, slowing down compared to last month.

The Wall Street Journal (WSJ) assessed, “Despite indicators showing substantial improvement in inflation, the Fed is signaling that there is no need to rush to raise interest rates.”

This year, the FOMC has four remaining meetings in July, September, November, and December. The market initially weighed the possibility of a September interest rate cut, but with this revised forecast, the possibility of a year-end cut has significantly increased.

Daniel Kim
content@viewusglobal.com

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