Fed eyes 3 rate cuts in 2024 despite inflation
Washington, US – The US Federal Reserve policymakers suggested that they continue to see the need for three interest rate cuts in 2024, despite recent signs of resilient economic growth.
The forecast, unchanged from December, was released following a two-day meeting of the rate-setting Federal Open Market Committee on Wednesday, reflecting its confidence that inflation is coming down.
The Fed kept its benchmark interest rate on hold at a 23year high of 5.25-5.50% as widely expected.
In its quarterly economic projections, the median forecast for the rate at the end of 2024 remained at 4.6%, meaning the central bank could carry out three quarter-point cuts from current levels.
But the latest rate estimates for the year-end periods of 2025 and 2026 were raised to 3.9% and 3.1%, respectively, from 3.6% and 2.9% as projected three months ago.
Meanwhile, the committee foresees that the US gross domestic product, adjusted for inflation, will be up 2.1% in the October-december period as compared to a year earlier, revising upward from 1.4% in its previous forecast.
The Fed's fifth straight decision to maintain the target range for the federal funds rate, which commercial banks charge each other for overnight loans, left a first cut in borrowing costs since 2020 until possibly sometime in the second half of this year.
The FOMC said in a statement it "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%."
The unanimous decision followed earlier expectations that the Fed could begin to ease monetary policy as soon as in March after two years of rapid rate hikes to tamp down price increases.
But data showed the US economy remaining robust, with inflation picking up this year.
The US Labor Department said last week that consumer prices were 3.2% higher in February compared to a year ago.
Fed Chair Jerome Powell told a press conference that recent strong economic data have not changed the overall story that inflation is moving toward its target on a "sometimes bumpy road."
Powell said, nonetheless, he wants to be "careful about dismissing data that we don't like." He offered virtually no hints about the timing of the first rate cut in 2024, while many economists and investors now expect it may happen as early as June.
He reiterated that Fed officials need to strike a delicate balance by avoiding cutting rates "too soon or too much," which could result in a "reversal of the progress" in taming inflation, or "too late or too little," which could "unduly weaken economic activity and employment."