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Despite Sticky Inflation, The Fed Expects Three Rate Cuts In 2024

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Despite Sticky Inflation, The Fed Expects Three Rate Cuts In 2024

(CTN News) – Despite stodgier expected progress towards the U.S. central bank’s 2% inflation goal, officials expressed optimism that interest rates would still be cut by three-quarters by 2024.

Inflation is continuing to be elevated in the Fed’s new policy statement, and updated quarterly economic projections indicate that personal consumption expenditures excluding food and energy will rise by 2.6% by the end of the year, compared to 2.4% in December’s projections.

The Fed’s 19 officials still expect the policy rate to fall at least three-quarters of a percentage point this year, a view first outlined in December and maintained despite recent stronger-than-expected inflation.

However, sentiments were slightly more hawkish. According to eleven officials in December, three quarter-percentage point cuts are in the works for the year, and economic forecasts have been upgraded as well.

Compared to the 1.4% forecast in December, growth is now expected to be 2.1%, while unemployment is expected to be 4%, lower than the 4.1% expected in December, and barely changed from February’s 3.9%.

Some Fed officials believe the economy can support higher interest rates in the future, so the longer-run policy rate was raised to 2.6%.

The Fed began tightening two years ago, but it has maintained its policy rate in the 5.25%-5.50% range since July last year.

Based on the latest projections, the Fed’s benchmark overnight interest rate is projected to fall by three quarters of a point in 2025, less than the 1 percentage point projected in December as part of a slightly slowed rate cut path, and by three quarters of a point in 2026, the same as originally expected.

A steady expansion of economic activity has been observed. Following its two-day meeting, the Federal Reserve reported that job growth and unemployment rates remained strong.

Additionally, the Fed said it is still waiting for “greater confidence” that inflation will continue to decline before cutting interest rates. At the 30-31 meeting, the rate will likely remain unchanged until just before the first rate cut.

There will be a press conference by Chairman Powell at 2:30 PM (1730 GMT) to discuss the policy statement.

The beginning of rate cuts in June had been firmly predicted by investors prior to the meeting. Even though the outcome of the meeting reinforced that opinion, the median rate outlook appears to be near its tipping point, which is likely to have an impact on inflation reports in the near future.

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