The Federal Reserve held interest rates steady on Wednesday and indicated that multiple cuts are still planned before the end of the year. Following its two-day policy meeting, the central bank’s rate-setting Federal Open Market Committee said it will keep its benchmark overnight borrowing rate in a range between 5.25%-5.5%, where it has been since July 2023.
In addition to the decision, Fed officials projected three quarter-percentage point cuts by the end of 2024, which would be the first reductions since the early days of the Covid pandemic in March 2020. The current federal funds rate level is the highest in more than 23 years and affects many forms of consumer debt.
The projections for the cuts came from the Fed’s “dot plot,” which consists of anonymous projections from the 19 officials who make up the FOMC. Chair Jerome Powell noted that there is no specific timing for the cuts, but the data will determine when they occur.
Market reactions were positive following the FOMC decision, with the Dow Jones Industrial Average finishing the session up over 1%. Treasury yields also headed lower. The Fed’s updated projections for GDP growth this year show an accelerated rate of 2.1%, up from the previous estimate of 1.4%. The unemployment rate forecast is slightly lower at 4%, and core inflation is expected to reach 2.6%.
While markets were previously expecting up to seven rate cuts by the end of the year, recent developments have caused a shift in outlook. Powell and other policymakers have emphasized a patient, data-driven approach to monetary policy. The expectation now is for the first rate cut to happen in June, with two more to follow.
The Fed’s balance sheet reduction program was also discussed at the meeting, with Powell indicating that decisions on the extent and timing of the potential reduction will be made soon.
Overall, the Fed’s decision to hold rates steady and signal upcoming cuts reflects a cautious approach to monetary policy in response to evolving economic conditions. Market reactions have been positive, and investors are optimistic about the future outlook.
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