US Fed likely to keep rates steady as hopes of early cuts fade

The U.S. Federal Reserve is expected to hold interest rates steady for a sixth straight meeting Wednesday, with a summer start to cuts looking less likely owing to stubborn inflation.

For months, the U.S. central bank has maintained its benchmark lending rate at a 23-year high to cool demand and rein in price increases — with a slowdown in inflation last year fueling optimism that the first cuts were on the horizon.

But inflation has accelerated, and analysts widely believe the rate-setting Federal Open Market Committee (FOMC) will keep its target range at 5.25 percent to 5.50 percent.

As hope dwindles for rate cuts in the first half of the year, the Fed also faces a growing possibility that eventual reductions will coincide with the run-up to November's presidential election.

This could give the economy a boost while Democrats and Republicans vie to win over voters. The converging timeline may prove uncomfortable given that the Fed, as the independent U.S. central bank, seeks to avoid any appearance of politicization.

Nevertheless, for Dan North, senior economist at Allianz Trade North America, "there is no chance" the FOMC will cut or raise rates on Wednesday.

Financial markets expected the central bank to begin cuts in June just a few weeks ago, but the most recent inflation reports have "definitively pushed the lift-off date substantially into the future," North said.

"The September meeting now seems like the most likely time for the first cut," he added.

  'Uncertainty' 

Ryan Sweet, chief U.S. economist at Oxford Economics, said that "given the incoming data on inflation, risks are weighted toward fewer cuts this year."

Sweet anticipates two reductions, in September and...