Fed Holds Rates Steady, Maintains Forecast for Three Rate Cuts in 2024

The Federal Reserve decided to leave interest rates unchanged on Wednesday, surprising some who expected adjustments due to recent inflation data. The central bank reiterated its prediction of needing to cut rates three times this year.

Key Points:

• Interest rates remain in the 5.25% – 5.50% range, the highest since 2001.
• Fed officials still forecast reducing rates by 0.75% by year-end.
• Lowering rates hinges on inflation moving steadily towards their 2% target.
• Most officials (9) see three rate cuts in 2024, while some (5) favor two.
• Inflation projections were adjusted slightly: 2.6% for 2024 and 2.2% for 2025.
• The Fed raised its economic growth outlook to 2.1% for 2024.
• The unemployment rate is expected to reach 4% by year-end.
• The Fed may soon slow the reduction of its asset holdings.

The Fed’s decision comes despite hotter-than-expected inflation readings in January and February. Chair Jerome Powell believes these are temporary fluctuations and inflation remains on track for a gradual decline. However, the Fed acknowledged inflation risks and won’t rush into rate cuts.

The Fed also upgraded its economic growth forecast for 2024, citing continued job market strength and consumer spending. They also increased their long-term neutral rate expectation to 2.6%.

Looking ahead, the Fed might soon implement a strategy to slow the decrease of its asset holdings, aiming to prevent market disruptions experienced in the past.

The Fed prioritizes controlling inflation while supporting economic growth. They plan to cut rates strategically this year but remain cautious due to inflation concerns. The central bank is also taking steps to manage its asset holdings with minimal market impact.