The Federal Reserve lowers rate cut forecast amid sticky inflation
At the monetary policy meeting on 12th June, the Federal Reserve suggested that it was lowering its rate cut forecast for 2024 from three cuts to one cut, with some sources having anticipated as many as seven cuts at the beginning of the year.
The decision was made following the release of headline inflation data for May, which showed consumer prices increased by 3.3% y-o-y, down from 3.4% in April. Although the figure decelerated on an annualised basis, the fall was insufficient to give the Federal Reserve the confidence to cut rates.
Additionally, recent economic data has not provided any need to cut rates, with non-farm payrolls increasing by 272,000 in May, exceeding the average monthly rise of 232,000 over the past year. Furthermore, unemployment was stable at 4% in May.
The delay to interest rate cuts had a bearish effect on non-yielding assets, like gold and silver. On the contrary, the Mintec dollar index rose slightly following the economic data and rate announcement, as yielding assets such as cash remain an attractive option for investment.
Persistently elevated interest rates have applied significant pressure to supply chains over the past year, resulting in sluggish demand across several industries, not least plastics and glass. With the Federal Reserve lowering the interest rate cut forecast, this pressure is set to remain across several markets for much of 2024, according to market sources.
