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The US central bank has signalled a pause in interest rates cuts demanded by the president as it grapples pressures from both elevated inflation and a weak jobs market.
The Federal Reserve, which has a dual mandate to promote stable prices and maximum employment, guided that just one rate cut was currently likely in 2026 after it announced a third consecutive reduction in the cost of borrowing.
Its key rate was trimmed to a near three-year low to around 3.6%, though there were three dissenting votes which argued for no change to the Fed funds rate, despite recent weakness in US hiring numbers.
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The Fed’s caution over the outlook for rate cuts comes as US economic growth is projected to pick up, with the jobless rate easing sharply next year.
At the same time, its projections see a level of 2.4% for the pace of price growth by the end of next year, down from the current rate around 3%, as the effects of US trade tariffs are slowly removed from the inflation calculations.
The central bank, worried about the impact on the world’s largest economy from Donald Trump’s trade war, said that its future decisions would be guided by the data.
“I would note that having reduced our policy rate by 75 basis points since September, and 175 basis points since last
September, the Fed funds rate is now within a broad range of estimates of its neutral value, and we are well positioned to wait to see how the economy evolves,” Fed chair Jay Powell told reporters.
Financial market attention was already firmly on 2026 ahead of the Fed meeting, as the central bank’s impartiality is placed at risk by the departure of Mr Powell in mid-May.
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