The hopes of cutting interest rates of the US Federal Reserve (US FED) have suffered a setback. Addressing the Congress on February 11, Fed Chairman Jerome Powell indicated that the possibility of cutting interest rates in the near future is low.
He said that in view of the current economic situation and inflation, there will be no policy change in haste. Earlier, he showed a similar stand in the last meeting of the Federal Open Market Committee (FOMC).
After this announcement, the US 10-year-old bond yield increased by 4.55%, falling to 4.38% last week.
Hasis in policies can affect inflation
Jerome Powell said in his half -yearly monetary policy report:
The monetary policy of the American Fed is now less strict than before.
The American economy remains strong, so a haste changes in the policy are not necessary.
Rapid changes in policies may disrupt the process of controlling inflation.
Current status of inflation:
- Inflation Rate in the US has come down significantly from the high level of 2023.
- However, it still remains above the target of 2% of the fed.
Therefore, US FED does not want to cut interest rates in a hurry, so that the economy is not unstable.
When will you get relief in rates?
Jerome Powell’s statement on Fed’s deduction policy:
Interest rates will be cut only when there is a clear indication that inflation is moving permanently towards the target of 2%.
If the US economy remains stable and inflation does not come close to 2%, then there will be no change in the policy.
If the labor market suddenly weakens or inflation falls unexpectedly, interest rates may be possible.
Market estimates:
- By September 2025, the US Fed may cut an interest rate of 0.25%.
- However, this deduction will depend on economic data and inflation situation.
What is the signal for investors?
Interest rate delays can affect the equity market and borrowing rates.
Increase in bond yields can lead to investors towards safe investment.
Inflation figures will affect Fed’s decision in the coming months.
In short: Fed will take a cautious stance on cuts cuts until inflation is not closer to the target of 2%.
