The Federal Reserve opted to keep its policy rate steady in the 5.25%-5.50% range on Wednesday, while scaling back its anticipated rate cuts for 2024. Officials now expect only a single quarter-percentage-point reduction this year, a shift from the three cuts projected in March.
This decision aligns with ongoing efforts to manage inflation, despite recognizing “modest further progress” towards the 2% inflation target.
The Fed’s revised outlook suggests the economy requires more restraint, increasing the estimated long-run “neutral” rate to 2.8% from 2.6%. This adjustment reflects the central bank’s assessment that inflation control necessitates sustained higher rates.
Inflation is now projected to reach 2.6% by year-end, up from the 2.4% forecast in March.
Despite the delayed and slower pace of rate cuts, the Fed anticipates more significant reductions in 2025 and 2026, aiming for a full percentage point decrease each year. Economic growth is expected to remain slightly above trend at 2.1% for 2024, with unemployment stable at 4%.
The Fed’s decision comes amidst slow progress on inflation and ongoing economic growth and job creation. The “dot plot” of interest rate projections reflects a broad consensus among policymakers that higher rates are essential to combating inflation. This stance is reinforced by recent debates suggesting the “neutral” rate of interest is higher than previously estimated.
Fed Chair Jerome Powell will address the outcomes of the latest meeting in a press conference at 2:30 p.m. EDT (1830 GMT).
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