- The US Federal Reserve has kept interest rates unchanged for the third consecutive time this year, after the Jan 28th and March 18th meetings.
- The Fed’s rationale for keeping rates unchanged is stability in the jobs market and higher inflation figures.
- The Federal Reserve is mandated to maintain inflation below 2%, which has been at 3.3% for March 2026 (latest data).
- My opinion on watching the Fed Meeting since 2021 is that a rate cut is expected at the June 16-17 meeting to prevent the renewal of US Federal Government debt at a higher price.
Fed Keeps Rate Unchanged at 3.5% to 3.75%, Effective Federal Funds Rate is 3.67%
The United States Federal Reserve Board has decided to keep interest rates unchanged at the effective Federal funds rate of 3.67%, citing higher inflation at 3.3% and limited job market losses. The current interest rates are between 3.5% and 3.75%. This window is called the Repo-Reverse Repo window.
Why The Fed Kept the Rates Unchanged and Why are Fed Rates So Important?
The Federal Reserve lends money to almost all commercial banks and non-banking financial institutions in the United States and other countries at the lowest possible interest rates. This money is then lent to commercial buyers and individual borrowers who then use it to either build a business or for consumption. Therefore, this money boosts the economy indirectly.
If the money supply is too high, too much spending will cause inflation, as in the current scenario. The economic stimulus checks provided during post-COVID market recovery programs were the main cause of the current high inflation worldwide.
Now, to decrease the money supply, the Federal Reserve has to raise interest rates, which in turn raises bank rates, prompting people to invest in bonds and other fixed-income instruments to take advantage of these rates. As a result, the money supply in the economy decreases. This was done by the US Fed between March 2022 and July 2024.
However, prolonged high interest rates also harm the creation of new jobs because most businesses rely on debt to grow. As a result, starting from July 2024, the rates were cut in steps to return to pre-2022 levels.
However, the reduction in rates should also be done in line with inflation; otherwise, high inflation will increase the cost of living, making it difficult for everyone to live within their limited income. This is why we see a pause in the interest rate cuts, as in the current case.
Next Federal Reserve Meeting Predictions
The next Federal Reserve meeting is scheduled to take place on June 16-17, 2026.
The current meeting was scheduled by the outgoing Federal Reserve Chairman, Jerome Powell, in his last meeting as chair. The next meeting will be held under a new Chairman, Kevin Warsh, who has already been approved by the US Congress.
Warsh is expected to be a Trump ally and might give in to Donald Trump’s demand to lower interest rates to 1.5%, i.e., a 2% drop from current levels. Therefore, we are expecting at least a 0.5% rate cut, and at most a 1% cut, at the June meeting.
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