US Fed expected to stand pat on interest rates as economy hums, inflation cools

US Fed expected to stand pat on interest rates as economy hums, inflation cools

The US Federal Reserve is widely expected to leave key interest rates unchanged on Wednesday despite muted hopes from businesses that the monetary policy authority might begin unwinding them from a 22-year-high as the economy sees a rebound and inflation slows.

While the Federal Open Market Committee (FOMC) had signalled a dovish shift in its December meeting, most traders see them standing pat at the current 5.25% to 5.5% in January, with expectations rising for a cut in March.

During the 2022-2023 cycle, the Fed increased rates 11 times to slow inflation but has held rates steady at 5.25%-5.50% since July.

The focus on Wednesday will be on the Fed's assessment of the US economy and the potential policy changes signalled during the post-meeting press conference.

With the robust performance of the US economy in Q4 we would expect the Fed to notionally at least push back against expectations of imminent rate cuts, Dubai lender Emirates NBD said in a note. "Prior to the Fed’s blackout period regional presidents had been dampening down market aspirations for rates to be cut as early as March."

According to the CME FedWatch tool, as of Wednesday morning, bankers and traders see a 97.9% chance of the Fed holding