The Federal Reserve is still eyeing three interest rate cuts this year, as officials wait for a bit more confidence inflation is reliably falling to more normal levels.
At the close of their two-day meeting on Wednesday, central bankers left the benchmark interest rate steady at between 5.25 and 5.5 percent. The move was highly expected and leaves borrowing costs at their highest level in 23 years. Officials also released projections that showed three rate cuts to come in 2024, unchanged from their December outlook.
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Still, financial markets, analysts, businesses and consumers are eager for a more precise timeline on when the Fed will decide to trim rates. Inflation has made considerable progress since soaring to 40-year highs. But price growth is still too fast, and the Fed isn’t ready to declare victory until officials are more certain that inflation is on its way to their 2 percent target.
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In a statement, officials noted that economic activity has been expanding “at a solid pace.” But there’s still uncertainty ahead.
“Job gains have remained strong, and the unemployment rate has remained low,” officials said. “Inflation has eased over the past year but remains elevated.”
Every few months, officials release fresh estimates for where they think rates, inflation, growth and the job market are headed. Policymakers now think the economy will grow 2.1 percent this year, up from the 1.4 percent forecast in December. They also expect the unemployment rate will end the year at 4 percent, down slightly from previous estimates. They also predict inflation will end the year at 2.4 percent — in line with previous estimates — and won’t hit the Fed’s 2 percent target until 2026.
Central bankers also slightly revised estimates for rates over the medium term, signaling borrowing costs will be slightly higher in 2025 and 2026 than previously anticipated. (Those forecasts are nonbinding, and policymakers often stress that they could change for myriad factors.)
Federal Reserve Chair Jerome H. Powell will appear at a news conference at 2:30 p.m. Eastern. He’s expected to get questions on his outlook for the economy, the timing of future cuts and whether he thinks inflation is becoming stickier during the last mile of the Fed’s fight.
Powell will also probably shed light on any discussions around the Fed’s vast balance sheet. Officials were expected to look more closely at the pace they are reducing more than $7 trillion in government bond holdings the central bank owns. While lowering the balance sheet is intended to raise yields on longer-term bonds, such moves can cause cracks in the markets and destabilize the financial system if not handled carefully. A decision on whether to change things up could come at subsequent meetings.
After six months of encouraging inflation reports, 2024 has brought unwelcome surprises. First, inflation came in hotter than expected in January. Economists and policymakers were quick to call the report a one-off, saying seasonal glitches and other data quirks often mess with the start of the year. But then February data ticked up slightly, too.
By the time central bankers convened for their two-day meeting this week, they didn’t have a comprehensive picture of whether the past few months have amounted to predictable bumps in the road or the beginning of a more worrisome trend. If officials become convinced that inflation is becoming more persistent or rising yet again, they’d be likelier to leave interest rates higher for longer and not cut them as soon in the future.
Meanwhile, the economy has stayed remarkably strong despite the Fed’s push to slow it down. The job market is still churning, and growth continues at a solid pace. For some officials, that has tempered the desire for cuts, because the economy is clearly forging ahead, and recession fears have faded away.
At the close of their two-day meeting on Wednesday, central bankers left the benchmark interest rate steady at between 5.25 and 5.5 percent. The move was highly expected and leaves borrowing costs at their highest level in 23 years. Officials also released projections that showed three rate cuts to come in 2024, unchanged from their December outlook.
Get a curated selection of 10 of our best stories in your inbox every weekend.
Still, financial markets, analysts, businesses and consumers are eager for a more precise timeline on when the Fed will decide to trim rates. Inflation has made considerable progress since soaring to 40-year highs. But price growth is still too fast, and the Fed isn’t ready to declare victory until officials are more certain that inflation is on its way to their 2 percent target.
ADVERTISING
In a statement, officials noted that economic activity has been expanding “at a solid pace.” But there’s still uncertainty ahead.
“Job gains have remained strong, and the unemployment rate has remained low,” officials said. “Inflation has eased over the past year but remains elevated.”
Every few months, officials release fresh estimates for where they think rates, inflation, growth and the job market are headed. Policymakers now think the economy will grow 2.1 percent this year, up from the 1.4 percent forecast in December. They also expect the unemployment rate will end the year at 4 percent, down slightly from previous estimates. They also predict inflation will end the year at 2.4 percent — in line with previous estimates — and won’t hit the Fed’s 2 percent target until 2026.
Central bankers also slightly revised estimates for rates over the medium term, signaling borrowing costs will be slightly higher in 2025 and 2026 than previously anticipated. (Those forecasts are nonbinding, and policymakers often stress that they could change for myriad factors.)
Federal Reserve Chair Jerome H. Powell will appear at a news conference at 2:30 p.m. Eastern. He’s expected to get questions on his outlook for the economy, the timing of future cuts and whether he thinks inflation is becoming stickier during the last mile of the Fed’s fight.
Powell will also probably shed light on any discussions around the Fed’s vast balance sheet. Officials were expected to look more closely at the pace they are reducing more than $7 trillion in government bond holdings the central bank owns. While lowering the balance sheet is intended to raise yields on longer-term bonds, such moves can cause cracks in the markets and destabilize the financial system if not handled carefully. A decision on whether to change things up could come at subsequent meetings.
After six months of encouraging inflation reports, 2024 has brought unwelcome surprises. First, inflation came in hotter than expected in January. Economists and policymakers were quick to call the report a one-off, saying seasonal glitches and other data quirks often mess with the start of the year. But then February data ticked up slightly, too.
By the time central bankers convened for their two-day meeting this week, they didn’t have a comprehensive picture of whether the past few months have amounted to predictable bumps in the road or the beginning of a more worrisome trend. If officials become convinced that inflation is becoming more persistent or rising yet again, they’d be likelier to leave interest rates higher for longer and not cut them as soon in the future.
Meanwhile, the economy has stayed remarkably strong despite the Fed’s push to slow it down. The job market is still churning, and growth continues at a solid pace. For some officials, that has tempered the desire for cuts, because the economy is clearly forging ahead, and recession fears have faded away.
