GlobalFed keeps rates steady, hints at future cuts

Fed keeps rates steady, hints at future cuts

WASHINGTON — Federal Reserve officials indicated Wednesday that they expect to reduce their benchmark interest rate three times during 2024, even though inflation remained at a surprisingly high level at the beginning of the year. However, they foresee further reductions in 2025 and slightly raised their inflation forecasts.

At the end of their meeting, officials said they kept the rate intact for the fifth time in a row.

In their new quarterly projections, Fed officials forecast that strong growth and high inflation will persist through this year and next. Therefore, they projected that interest rates would remain slightly high for longer.

They now foresee three reductions in 2025, one less than in their December projections. They also forecast that “core” inflation, which excludes the volatile items of food and fuel, will remain at 2.6% at the end of 2024, compared to their previous expectation of 2.4%. In January, core inflation was 2.8%, according to the Fed’s preferred measure.

The forecasts taken together suggest that policymakers continue to foresee an unusual combination in the US economy: a robust labor market and a healthy economy along with inflation that continues to cool, although more gradually than predicted three months ago. .

Most economists say the Fed’s June meeting will be the most likely occasion to announce its first rate cut, which would begin to reverse the 11 increases it began two years ago. The Fed’s increases have helped reduce inflation, from its peak of 9.1% in June 2022 to 3.2%. But with it, the cost of loans for businesses and households has increased.

When the Fed raises interest rates beyond its neutral rate, it tries to slow growth and inhibit inflation. If the neutral rate is indeed higher than the Fed thought, its key interest rate must be higher too, in order to cool the economy and inflation.

Two recent reports point to higher-than-expected inflation. One showed that consumer prices increased from January to February at a rate greater than the bank’s desired goal. The other showed that wholesale inflation is surprisingly high – a sign that inflationary pressures could keep consumer prices elevated.

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