The US Federal Reserve pencils in one interest rate cut this year

The US Federal Reserve has indicated that it will cut its key interest rate only once this year despite the decline in inflation.

Back in March, the central bank was expected to cut borrowing costs three times by the end of 2024.

However, on Wednesday, new forecasts from the Federal Reserve officials who make decisions on interest rates point to one cut.

The new forecasts emerged after the Federal Reserve voted to keep interest rates at their current 23-year highs even as inflation declines.

Inflation, which measures the pace of price rises, slowed to 3.3% in the year to May. This compares to 3.4% in the 12 months to April.

However, inflation was unchanged between April and May, and remains above the Fed’s 2% target.

Federal Reserve Chairman Jerome Powell said only “modest” progress had been made toward achieving the goal, and the central bank would need to see “good inflation readings” before interest rates could be cut.

US interest rates were kept at 5.25%-5.5%.

“We’ve got some good news in terms of improving inflation numbers,” Anastasia Fedek, associate professor of finance at Haas Business School at the University of California Berkeley, told the BBC’s Today programme.

“But the Fed is still very dovish, so it is signaling that in the future they will do one, most likely, rate cut and not a very big one at that time.”

Some analysts have indicated that the central bank will reverse a number of interest rate cuts this year.

Ian Shepherdson, chief economist at macroeconomics firm Pantheon, said cutting expectations for interest rate cuts from three to one this year was “unnecessarily aggressive.”

While economists at Wells Fargo said it would be “close” between making one or two cuts in 2024.