The US Federal Reserve is likely to keep interest rates unchanged until the third quarter of next year, according to Swiss-based private banking group, Julius Baer. 

The Fed decided in its November meeting to leave the rates in the range of 5.25 to 5.50% for the second time in a row, citing strong economic growth and job gains in the July to September period.

In its future deliberations, the Fed will be convinced that more policy tightening will not be necessary, and the rates are expected to remain in the current range amid economic growth and lower inflation, David Kohl, Chief Economist at Julius Baer, said in a note.

“We project that the Fed is done with interest rate hikes and that solid economic growth will result in a high hurdle for cutting rates even if inflation continues to drift lower,” Kohl noted.

“We thus expect an unchanged federal funds target rate until September 2024.”

At highest level

Although it has been left unchanged, the current benchmark rate is still at its highest level in 22 years.  From March 2022 to early this year, the Fed had rolled out a series of rate hikes to combat rising inflation.

The US Bureau of Economic Analysis (BEA) estimated that the US economy grew at an annualised rate of 4.9% in the third quarter.

Kohl noted that it remains uncertain whether the current monetary policy stance is restrictive enough. At the same time, he continued, higher bond yields and weaker equity markets have tightened overall financial conditions, thus a rate hike is unnecessary.

“Going forward, we expect that softening growth and lower inflation will convince the FOMC that more policy tightening is not necessary, and that rate will remain in the current range until September 2024,” Kohl concluded.

Central banks in the GCC, including Qatar and the UAE, have kept interest rates steady, following the Fed’s recent decision. In the UAE, the base rate applicable to the overnight deposit facility will remain at 5.4%, the central bank said on Wednesday.

(Reporting by Cleofe Maceda; editing by Seban Scaria)