After ending their latest meeting, Federal Reserve officials kept their benchmark interest rate unchanged for a fifth straight time at between 5.25% and 5.5%, reports the Wall Street Journal. They signaled 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, reports the AP. Markets rose to all-time highs on the news.
In new quarterly projections they issued Wednesday, 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. They now foresee three rate cuts in 2025, down from four in their December projections. 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. When the Fed raises its benchmark rate above the neutral rate, it seeks to slow growth and tame inflation. If the neutral rate is actually higher than the Fed had thought, it means its key rate should be higher, too, to cool the economy and inflation.
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Most economists have pegged the Fed's June meeting as the most likely time for it to announce its first rate cut, which would begin to reverse the 11 hikes it imposed beginning two years ago. The Journal notes there is one meeting of the Fed before then, on April 30 and May 1.
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