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Fed still plans three rate cuts in 2024 amid persistent inflation and stronger economy

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THE Federal Reserve Interest rates were held steady on Wednesday, but policymakers indicated they still planned to cut them by three-quarters of a percentage point by the end of 2024, despite expected slower progress toward the goal inflation rate of 2% from the American central bank.

THE fedThe government’s new policy statement describes inflation as remaining “high”, and updated quarterly economic projections show the price index for personal consumption expenditure excluding food and energy increasing at a rate of 2.6% to the end of the year, compared to 2.4% in published projections. in December.

Yet 10 of 19 Fed officials still forecast a policy rate cut of at least three-quarters of a percentage point by the end of this year, a median forecast first set in December and maintained despite a recent inflation higher than expected.

The sentiment, however, was slightly more hawkish. In December, eleven officials planned three-quarter point cuts for the year, and the new policy vision was accompanied by an improved economic outlook. Growth is now estimated at 2.1% for the year, compared to just 1.4% forecast in December, while the unemployment rate is expected to end the year at 4%, lower than the 4.1% expected in December and barely changed from the recorded unemployment rate of 3.9%. in February.

One of the key measures, the long-term policy rate, was raised by a tenth of a percentage point, from 2.5% to 2.6%, reflecting the view of some Fed officials that the economy can generally withstand higher interest rates in the future.

The Fed launched an aggressive cycle of monetary policy tightening two years ago in response to a surge in inflation that would eventually reach a 40-year high, but it kept its key rate in the range of 5.25% to 5.50% since last July. the latest projections show that the median policymaker expects the Fed’s benchmark overnight interest rate to fall by three-quarters of a percentage point in 2025, less than the percentage point projected in December in “Economic activity developed at a solid pace. Job creation remained strong and the unemployment rate remained low.” the Fed said in its unanimously approved statement after the end of the year. a two-day meeting.

The statement also reiterates that officials are still seeking “greater confidence” in a continued decline in inflation before beginning to cut interest rates, language adopted at the Jan. 30-31 Fed meeting and which should remain in effect just before the first interest rate. reduction.

Fed Chairman Jerome Powell will hold a press conference at 2:30 p.m. EDT (6:30 p.m. GMT) to detail the policy statement and projections.

Before the meeting, investors were firmly focused on a rate cut expected to begin in June. That view was largely reinforced by the meeting’s results, but it also leaves the outlook for median rates near a tipping point, a fact that could give outsized influence over upcoming inflation reports.

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