Fed still sees 3 cuts, but not ultra-low rates
WASHINGTON — Federal Reserve officials signaled Wednesday that they still expect to cut their key interest rate three times in 2024 despite signs that inflation stayed surprisingly high at the start of the year. Yet they foresee fewer rate cuts in 2025, and they slightly raised their inflation forecasts.
After ending their latest meeting, the officials kept their benchmark interest rate unchanged for a fifth straight time.
In new quarterly projections they issued, the Fed officials forecast that stronger growth and stubborn inflation would persist this year and next. As a result, they predicted that interest rates would have to stay slightly higher for longer.
Speaking at a news conference, Chair Jerome Powell noted that inflation has cooled considerably from its peak. But, he added, “inflation is still too high, ongoing progress in bringing it down is not assured and the path forward is uncertain.”
The policymakers now foresee three rate cuts in 2025, down from four in their December projections. Rate cuts would, over time, lead to lower costs for home and auto loans, credit card borrowing and business loans. They might also aid President Joe Biden’s re-election bid, which is facing widespread public unhappiness over higher prices and could benefit from lower borrowing rates.
The Fed’s policymakers also expect “core” inflation, which excludes volatile food and energy costs, to still be 2.6% by the end of 2024, up from their previous projection of 2.4%. In January, core inflation was 2.8%, according to the Fed’s preferred measure.
The Fed’s officials signaled that they also now foresee their benchmark rate as being higher in the future than it was in recent years — high enough to keep inflation in check but low enough to keep the economy growing. They had long pegged this “neutral rate” at 2.5%. But on Wednesday, the officials estimated that it’s now 2.6%. If so, this means rates are less likely to return to the ultra-low levels that prevailed for years before the pandemic struck.