Statistics show that economic activity in the United States continues to grow at a strong pace, the Federal Reserve’s statement said. “Job growth has slowed and the unemployment rate has increased but remains low. Inflation has moved further toward the 2% objective but remains slightly elevated,” the Federal Reserve said. The statement indicated that the Federal Reserve is now more confident that inflation is moving steadily toward its 2% objective and believes that the risks to achieving its employment and inflation goals are roughly balanced. The economic outlook can be considered uncertain and the Federal Reserve is keeping an eye on risks to both inflation and the labor market, the regulator added.
At the end of August, annual inflation (compared to August last year) in the United States rose to 2.5%, the lowest figure since February 2021. Consumer price growth in the country has slowed from 2.9% in July, according to data from the US Department of Labor. At the end of 2023, inflation in the United States was 3.4%. The peak of annual inflation in the country occurred in June 2022, when the figure jumped to 9.1%.
Until September 18, the Fed had maintained the interest rate range between 5.25% and 5.5% for eight consecutive meetings (i.e. more than a year). Before the June 2023 meeting, the Fed conducted ten consecutive rounds of rate hikes, and last July, after a short pause, the range increased again. The dollar interest rate growth started from a minimum level of 0-0.25%. The Fed began raising rates in the spring of 2022 due to accelerating inflation, the main reasons for which were the disruption of supply chains due to the pandemic and the accompanying lockdowns, as well as the conflict in Ukraine and subsequent sanctions, which together accelerated commodity prices. This was the first increase in the rate range since 2018.
The Federal Reserve will announce its next decision on the rate range on November 7, and analysts and the market expect a further reduction. By the end of the year, the interest rate could be reduced to 4-4.25%, admits Oksana Kholodenko, head of the analysis and promotion department of BCS World of Investments.
At the same time, it is difficult to say with certainty what level the Fed’s rate range will ultimately be. “We believe that the market’s rate forecast until the end of 2025 is too aggressive given the current inflation risks due to high US budget deficits, which could widen even further with the implementation of Donald Trump’s and Kamala Harris’s programs. The Federal Reserve rate at the end of 2025 will be “3.5-4%,” says Olga Belenkaya, head of the macroeconomic analysis department at Finam financial group.
