The Fed kept interest rates unchanged for the sixth time.

The US Federal Reserve (Fed) on May 1st kept its benchmark interest rate unchanged at a 23-year high, while denying the possibility of raising it.

On May 1st, as predicted by the market, the Fed decided not to raise interest rates after its two-day policy meeting. The benchmark interest rate in the US is now around 5.25-5.5% - the highest level in 23 years. In the previous five meetings, the agency also kept interest rates unchanged.

Previously, the Fed had raised interest rates 11 times since March 2022 to curb inflation. US inflation has slowed significantly from its 40-year peak in the summer of 2022, but recent figures show "a lack of improvement," according to the Fed's announcement.

"Inflation is too high and the prospect of a sustainable cooling is not yet certain. It may take some time before we feel more confident about this process," Fed Chairman Jerome Powell said at a press conference on May 1st.

The personal consumer price index (PCE) for March was 2.7% - up from 2.5% in February. The Fed's target is 2%.

Federal Reserve Chairman Jerome Powell at a press conference on May 1st. Photo: Reuters — Federal Reserve Chairman Jerome Powell at a press conference on May 1st. Photo: *Reuters*

Stocks fluctuated in opposite directions after Powell announced he was "unlikely" to raise interest rates further. The DJIA closed 0.2% higher on May 1st. Meanwhile, the S&P 500 and Nasdaq Composite both fell 0.3%. The price of spot gold rose by more than $30 to $2,317 an ounce.

The Fed also announced a loosening of restrictions on the economy , through slowing the contraction of its balance sheet. Besides interest rates, this is also a tool they use to stimulate or cool down the economy. Accordingly, starting in June, the Fed will allow $25 billion of government bonds to mature each month without repurchasing them. Previously, this figure was $60 billion.

During the press conference, Powell stated that several scenarios could lead to interest rate cuts, including a return to lower inflation as the economy and job market stabilize. This is a scenario that unfolded last year.

The US job market remains generally strong. The unemployment rate is below 4% and businesses are hiring aggressively. The April jobs report will be released on May 3rd.

Powell forecasts that the economy and inflation will cool in the second half of the year, as savings from the pandemic shrink. However, persistent inflation is dragging down predictions about when the Fed will begin cutting interest rates. JPMorgan and Goldman Sachs believe the first cut will be in July, while Wells Fargo is betting on September and Bank of America believes the Fed won't act until December.

Currently, according to the CME FedWatch interest rate tracking tool, the market is betting on November.

Powell is waiting for more indicators to cool down, such as rental prices. He also asserted that the economy is not in a state of stagflation – high inflation coupled with slow growth.

Ha Thu (according to CNN, Reuters)

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