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Fed holds US interest rate steady in June warning of just one possible cut this year

An American flag flies over the Federal Reserve building in Washington
An American flag flies over the Federal Reserve building in Washington Copyright Patrick Semansky/Copyright 2021 The AP. All rights reserved.
Copyright Patrick Semansky/Copyright 2021 The AP. All rights reserved.
By Euronews
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The policymakers' forecast for one rate cut was down from a previous forecast of three, because inflation, having cooled in the past two months, remains persistently high.

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Federal Reserve officials on Wednesday kept the US interest rate unchanged at 5.3%, explain that, although inflation has fallen further toward their target level in recent months, it remains persistantly high.

They signalled they expected to cut their benchmark interest rate just once this year.

The policymakers' forecast for one rate cut was down from a previous forecast of three, because of their concerns about inflation.

In a statement issued after its two-day meeting, the Fed said the economy was growing at a solid pace while job hiring has "remained strong". The officials also noted that in recent months there had been "modest further progress" toward its 2% inflation target.

That is a more positive assessment than after the Fed's previous meeting on 1 May, when officials had aired concern about a "lack of further progress" on inflation.

The policymakers, as expected, kept their key rate unchanged Wednesday at roughly 5.3%. The benchmark rate has remained at that level since July of last year, after the Fed raised it 11 times to try to slow borrowing and spending and cool inflation.

Fed rate cuts would, over time, make loans for consumers cheaper. They have been facing punishingly high rates for mortgages, car loans, credit cards and other forms of borrowing.

The officials' rate-cut forecast reflects the individual estimates of 19 policymakers. Eight of those officials had projected two rate cuts and seven projected one cut. Four said they envisioned no cuts at all this year, the Fed said.

The Fed's updated quarterly projections are not fixed in time. The policymakers frequently revise their plans for rate cuts — or hikes — depending on how economic growth and inflation measures evolve over time.

In early May, Chair Jerome Powell said the central bank needed more confidence that inflation was returning to its target before it would reduce its benchmark rate. Powell noted that it would likely take more time to gain that confidence than Fed officials had previously thought.

Last month, Christopher Waller, an influential member of the Fed's Board of Governors, said he needed to see "several more months of good inflation data" before he would consider supporting rate cuts.

Although Waller did not specify what would constitute good data, economists believe it would have to be core inflation of 0.2% or less each month.

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