Fed maintains interest rates, hints at one cut in 2024

The US Federal Reserve (Fed) left interest rates unchanged at its two-day policy meeting which concluded yesterday and indicated that there will be at least one rate cut this year.

PHOTO: US Federal Reserve headquarters in Washington DC. Getty Images

The front-month ICE Brent futures gained $0.68/bbl to settle at $82.60/bbl on Wednesday, after the US Fed officials hinted at one rate cut this year.

The central bank maintained its key interest rates at 5.25-5.5% at its Federal Open Market Committee (FOMC) meeting that concluded yesterday.

Meanwhile, inflation in the US, measured by the change in the Consumer Price Index (CPI), declined to 3.3% year-on-year in May from 3.4% in April, data from the US Labor Department's Bureau of Labor Statistics (BLS) showed.

The annual US CPI reading for May was below the market expectation of a 3.4% rise.

A dip in inflation has supported the oil market’s expectations of a sooner-than-expected interest rate cut by the Fed.

Last month, Fed chairman Jerome Powell said that the US central bank expects to cut interest rates in 2024 from the current levels. Lower interest rates make the greenback weaker for non-dollar holders, which can support demand growth for dollar-denominated commodities like oil.

“[Oil] investors cheered a slight cool-down in the US’ May inflation data, prioritising it over the US Federal Reserve holding interest rates steady [at the latest FOMC meeting] and signalling one cut for 2024,” VANDA Insights’ founder and analyst Vandana Hari said.

The US Fed has been ramping up measures to bring inflation in the country under its 2% target rate, before implementing interest rate cuts.  

Earlier this month, the European Central Bank (ECB) cut its key interest rate by 0.25% to 3.75% from a record high of 4%. This news also bolstered the oil market's anticipation of a rate cut by the US Fed.

By Aparupa Mazumder 

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