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Fed Leaves Rates Flat at 5.5%, Officials Wary of Cutting, Cite Lack of Progress on Inflation

Key points:
  • Fed leaves rates unchanged.
  • Inflation is still a broad threat.
  • Rate cuts might not arrive soon.
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Job gains are strong and recent economic activity continues to expand, Fed noted, adding there hasn’t been much progress on tackling inflation.

  • The Federal Reserve left interest rates unchanged at 5.5% and pushed back against expectations for three rate cuts, as previously indicated. The Federal Open Market Committee (FOMC) acknowledged that the fight against inflation is far from over and even cited a “lack of further progress,” which threw investors off, causing shockwaves across markets.
  • The US dollar pulled back across the forex board, with the dollar-yen drifting lower by 0.2% to levels near 157.40. The euro-dollar gained some traction minutes after the Fed decision and exchanged at the range of $1.0690 to $1.07. Gold crossed the $2,300 threshold per ounce after struggling to move up earlier this week.
  • ”Recent indicators suggest that economic activity has continued to expand at a solid pace, job gains have remained strong,” the Fed’s statement said, “but inflation remains elevated in recent months.” The decision to leave the benchmark interest rate was expected by investors.
  • What shook up confidence across markets is that prospects for much-anticipated rate cuts might not materialize any time soon. To this end, investors now expect Fed policymakers to keep rates flat when they meet again in June. Some analysts don't see a rate cut until November 7, or just two days after the Presidential Election.