Invest
Fed keeps rates steady, signals higher for longer amid elevated inflation
The Federal Reserve kept interest rates unchanged at its May meeting and signaled that rates are likely to stay higher for longer given elevated inflation in the first quarter, while also announcing a tapering of its quantitative tightening (QT) program.
In its statement, the Fed recognized the lack of progress on inflation, repeating that it "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."
The Fed also announced that it will slow the reduction of its Treasury holdings starting in June, reducing the monthly redemption cap on Treasuries from $60 billion to $25 billion.
During the post-meeting press conference, Fed Chair Jerome Powell expressed less confidence about the near-term rate outlook, omitting his prior references to the "peak for this tightening cycle" and to rate cuts "at some point this year", and suggested that rates will likely stay higher for longer.
"It is likely that gaining such greater confidence will take longer than previously expected. We are prepared to maintain the current target range for the federal funds rate as long as appropriate," Powell said.
However, Powell's comments were still viewed as dovish after he insisted that policy is restrictive and refused to put rate hikes on the table, possibly for fear of causing an excessive further tightening in financial conditions.
Barclays Research retains its baseline call that the Fed will deliver just one 25 basis point rate cut this year, in September at the soonest, but if inflation comes in stronger than expected, the first rate cut could be postponed to December.
For 2025, Barclays continues to expect four rate cuts, with the Fed normalizing its rates as inflation continues to move gradually toward the 2% target and activity grows along its trend.
The bank also noted that the reduction in the Treasury cap for QT was larger than expected, but the market's initial reaction after the FOMC announcement seems a bit exaggerated given the Fed will be reinvesting an additional $35 billion this year across the entire maturity spectrum.
Fed keeps rates steady, signals higher for longer amid elevated inflation
The Federal Reserve kept interest rates unchanged at its May meeting and signaled that rates are likely to stay higher for longer given elevated inflation in the first quarter, while also announcing a tapering of its quantitative tightening (QT) program.
In its statement, the Fed recognized the lack of progress on inflation, repeating that it "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."
The Fed also announced that it will slow the reduction of its Treasury holdings starting in June, reducing the monthly redemption cap on Treasuries from $60 billion to $25 billion.
During the post-meeting press conference, Fed Chair Jerome Powell expressed less confidence about the near-term rate outlook, omitting his prior references to the "peak for this tightening cycle" and to rate cuts "at some point this year", and suggested that rates will likely stay higher for longer.
"It is likely that gaining such greater confidence will take longer than previously expected. We are prepared to maintain the current target range for the federal funds rate as long as appropriate," Powell said.
However, Powell's comments were still viewed as dovish after he insisted that policy is restrictive and refused to put rate hikes on the table, possibly for fear of causing an excessive further tightening in financial conditions.
Barclays Research retains its baseline call that the Fed will deliver just one 25 basis point rate cut this year, in September at the soonest, but if inflation comes in stronger than expected, the first rate cut could be postponed to December.
For 2025, Barclays continues to expect four rate cuts, with the Fed normalizing its rates as inflation continues to move gradually toward the 2% target and activity grows along its trend.
The bank also noted that the reduction in the Treasury cap for QT was larger than expected, but the market's initial reaction after the FOMC announcement seems a bit exaggerated given the Fed will be reinvesting an additional $35 billion this year across the entire maturity spectrum.
The Federal Reserve kept interest rates unchanged at its May meeting and signaled that rates are likely to stay higher for longer given elevated inflation in the first quarter, while also announcing a tapering of its quantitative tightening (QT) program.
In its statement, the Fed recognized the lack of progress on inflation, repeating that it "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."
The Fed also announced that it will slow the reduction of its Treasury holdings starting in June, reducing the monthly redemption cap on Treasuries from $60 billion to $25 billion.
During the post-meeting press conference, Fed Chair Jerome Powell expressed less confidence about the near-term rate outlook, omitting his prior references to the "peak for this tightening cycle" and to rate cuts "at some point this year", and suggested that rates will likely stay higher for longer.
"It is likely that gaining such greater confidence will take longer than previously expected. We are prepared to maintain the current target range for the federal funds rate as long as appropriate," Powell said.
However, Powell's comments were still viewed as dovish after he insisted that policy is restrictive and refused to put rate hikes on the table, possibly for fear of causing an excessive further tightening in financial conditions.
Barclays Research retains its baseline call that the Fed will deliver just one 25 basis point rate cut this year, in September at the soonest, but if inflation comes in stronger than expected, the first rate cut could be postponed to December.
For 2025, Barclays continues to expect four rate cuts, with the Fed normalizing its rates as inflation continues to move gradually toward the 2% target and activity grows along its trend.
The bank also noted that the reduction in the Treasury cap for QT was larger than expected, but the market's initial reaction after the FOMC announcement seems a bit exaggerated given the Fed will be reinvesting an additional $35 billion this year across the entire maturity spectrum.
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