US Federal Reserve Chairman Jerome Powell
US Federal Reserve Chairman Jerome Powell holds a press conference at the end of Monetary Policy Committee meeting in Washington, DC, on December 13, 2023. Image Credit: Photo by Brendan SMIALOWSKI / AFP

The US Federal Reserve kept its key monetary policy rate steady at a 22-year-high on Wednesday – the fifth consecutive time it has hit the pause button this year, as central bankers still anticipate cutting interest rates three times this year.

The Federal Open Market Committee was earlier poised to keep rates unchanged in a range of 5.25 per cent to 5.5 per cent at its two-day policy meeting. However, in new quarterly projections issued, the Fed officials forecast that stronger US growth and inflation would persist this year and next.

Speaking at a news conference, Chair Jerome Powell noted that inflation has cooled considerably from its peak. But, he added, "inflation is still too high, ongoing progress in bringing it down is not assured and the path forward is uncertain.”

UAE holds interest rates steady

Shortly after the Fed's announcement, the UAE Central Bank said it's keeping its interest rate unchanged as well.

"The Central Bank of the UAE (CBUAE) has decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) without change at 5.40 per cent. This decision was taken following the US Federal Reserve’s announcement on March 20 to keep the interest on Reserve Balances (IORB) unchanged,” it said in a statement.

The CBUAE said it has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the Base Rate for all standing credit facilities. (The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE.)

Keep US rates higher for longer

The new Fed projections suggest policymakers are more inclined to keep rates higher for longer to make sure US inflation does not stall out above their 2 per cent goal, or flare up again.

So while the Fed now expects to cut their key interest rate three times in 2024 despite signs that inflation in the US stayed surprisingly high at the start of the year, they foresee fewer rate cuts in 2025, while slightly raising their inflation forecasts.

By the end of 2025, policymakers anticipate a policy rate of 3.9 per cent, according to the median of their projections, implying an additional three quarter-of-a-percentage-point cuts next year. In December the median policymaker wrote down an end-2025 rate of 3.6 per cent.

- with inputs from Agencies