The Fed Still Holds Interest Rates, Cut Expected to Start in September

The Fed is expected to hold rates at 3.5-3.75 percent. (Wikimedia Commons - AgnosticPreachersKid)

JAKARTA - The Fed is not expected to cut interest rates in this week's meeting. The US central bank is still waiting for the direction of the labor market, core inflation, and the impact of energy prices due to the war in the Middle East.

Launching an Anadolu Agency report, Tuesday, April 28, the Fed is expected to keep interest rates in the range of 3.5-3.75 percent. However, a number of economists believe that the cuts remain open this year, possibly starting in September.

Philip Marey, senior U.S. strategist at Rabobank, expects the Fed to cut rates twice this year, in September and December.

According to Marey, market attention will be focused on the statement of Fed Chairman Jerome Powell. Especially about the latest economic data and how much the Middle East war affects the direction of the central bank's policy.

Energy prices are a major drag. If they continue to rise, inflation could be difficult to bring down. However, if the labor market weakens, the pressure to cut interest rates will increase.

Marey also said Fed Governor Stephen Miran's board member is likely to back down on the decision to keep interest rates.

On the other hand, Powell's position is also in the spotlight. It is not clear whether this week's meeting will be his last as chairman. If the confirmation of Kevin Warsh, Trump's nominee, is delayed in the Senate, Powell still has the opportunity to serve temporarily in June.

Oliver Allen, senior US economist at Pantheon Macroeconomics, assessed that this week's meeting was likely to be calm. The Fed, said Allen, is still waiting for clearer signs from the labor market and core inflation before moving.

Allen expects the Fed to cut rates by 25 basis points in three consecutive meetings starting in September. However, the schedule could still shift, depending on developments in the labor market and core inflation.