United States: Central Bank keeps rates steady in April
Latest bank decision: At its late April meeting, the Central Bank kept the target range for the federal funds rate at 3.50–3.75%, following 75 basis points of rate cuts from August to December last year. The decision was expected by markets.
Inflation uncertainty drives hold: The Fed decided not to continue cutting interest rates given inflation is still above the 2.0% target and that upside risks to the inflation outlook have risen due to the recent surge in energy prices. A wait-and-see approach was warranted given uncertainty over how long conflict in the Middle East—which has driven the surge in energy prices—will last.
More cuts are possible: The Fed’s own forecasts are for 25 basis points of cuts by the end of 2026, with our Consensus for roughly the same amount of monetary easing. However, risks are skewed towards no cuts due to high energy costs keeping price pressures elevated.
Panelist insight: On the outlook, TD Economics’ Thomas Feltmate said:
“If all goes as planned, Kevin Warsh will be in-seat for the next interest rate decision on June 16-17, though it remains unclear whether Powell will serve out the remaining two-years of his term on the board of governors. Either way, it seems very unlikely that a Warsh Fed will quickly pivot to lowering interest rates. Decisions are made by a majority vote, and it’s becoming clear that many participants are reluctant to take rates any lower amid a resilient economy and still elevated inflationary pressures. We see the Fed staying on hold through at least the summer, with the potential for more rate cuts later this year should inflation show more compelling evidence of moving back towards the Fed’s 2% target.”
Desjardins’ Francis Généreux said:
“The evolution of the conflict in Iran and oil prices clearly remains a key factor that could alter the outlook for growth and inflation. For the time being, both Powell’s comments and our own forecasts do not point to an imminent change in the policy rate. We therefore expect the current rate to remain in place at least until late in the fall 2026.”