As expected, Fed holds rates steady
Forecasts three cuts for 2024 – but not quite yet
WASHINGTON – The Federal Reserve left its key interest rate unchanged again Wednesday and stuck to its forecast of three rate cuts this year despite signs that inflation may stay elevated longer.
Fed officials also bumped up their estimates of economic growth and inflation in 2024, repeating that “economic activity has been expanding at a solid pace.” They upgraded their view of the labor market, saying “job gains have remained strong.”
The benchmark short-term rate thus stays at a 23-year high of 5.25% to 5.5% for a fifth straight meeting. The central bank has stood pat since July as consumer price increases moderated substantially.
In a statement after a two-day meeting, the Fed repeated that it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation (now close to 3%) is moving sustainably toward” the Fed’s 2% goal.
The decision means consumers will continue to endure higher borrowing costs for mortgages, credit cards and auto and other loans but will also benefit from higher savings account yields.
Though inflation has eased more slowly early this year, Fed officials maintained their projection that they will lower the federal funds rate by three-quarters of a percentage point to a range of 4.5% to 4.75% by year’s end. That’s equivalent to three quarter-point rate cuts, an outlook that could further bolster a stock market that has hit new records since fall on the prospect of lower rates.
At a news conference, Fed Chair Jerome Powell acknowledged that inflation flared in early 2024. But he said the January uptick could have been caused by challenges in seasonally adjusting the data. The February data was more worrisome, he said, but it appeared to show less of a spike than the previous month.
“The story is really essentially the same of inflation coming down gradually to 2% on a sometimes bumpy path,” Powell said. “We’re not going to overreact ... to the two months of data.”