US Federal Reserve maintains current lending rate, officials project three rate cuts in the year ahead

On Wednesday, the US Federal Reserve decided to keep the key lending rates steady at 5.25% – 5.50% for the fifth consecutive meeting, following a two-day consultation by the Federal Open Market Committee (FOMC). This choice was made despite indications of unexpectedly high inflation at the beginning of the year.

Policy makers revised their economic forecasts, significantly boosting the US growth projection for this year from 1.4% to 2.1% compared to December. While they maintained the headline inflation forecast, they slightly increased the outlook for annual “core” inflation, which excludes energy and food prices, to 2.6%.

Below is the complete text of the Federal Reserve’s monetary policy statement:

Recent signs indicate solid economic expansion, with robust job gains and low unemployment persisting. While inflation has moderated over the past year, it remains elevated.

The Committee aims for maximum employment and 2% inflation in the long term. It assesses that risks to achieving these goals are becoming more balanced. The economic outlook is uncertain, and the Committee closely monitors inflation risks.

To support its objectives, the Committee chose to maintain the federal funds rate target range at 5-1/4 to 5-1/2 percent. It will assess incoming data, the evolving outlook, and risk balance before considering any adjustments to this range. The Committee does not anticipate lowering the target range until it is more confident that inflation is steadily approaching 2 percent.

Furthermore, it will continue to reduce its holdings of Treasury securities and agency debt and mortgage-backed securities, as outlined in its existing plans. The Committee is firmly dedicated to restoring inflation to its 2 percent target.

The Committee will keep examining new data’s impact on the economic outlook to determine the suitable monetary policy stance. It stands ready to adjust policy if risks arise that could hinder goal achievement. Assessments will consider various factors, such as labor market conditions, inflation pressures and expectations, and global financial developments.

Voting on the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.

Anticipated Market Trends

Before Wednesday’s decision and press conference, traders estimated a slightly higher than 50-50 chance of the first rate cut in June, expecting approximately three cuts this year.

While policymakers projected the federal funds rate to reach 4.6% by the end of 2024, individual expectations varied. The Fed’s “dot plot” revealed that ten officials anticipated three or more quarter-point cuts this year, while nine predicted two or fewer.

Fed officials emphasized that the projections are not set in stone and can change based on incoming data regarding inflation and the labor market. Despite consumer prices rising more than expected in the past two months and the US unemployment rate increasing to a two-year high, policymakers still consider it low.

Additionally, policymakers slightly raised their long-term rate forecasts to 2.6% from 2.5%, amidst speculation from economists about the potential for higher rates in the post-pandemic era. This adjustment suggests that rates may need to remain elevated for a longer duration.

Furthermore, policymakers updated their 2024 projections for inflation and economic growth, increasing the forecast for underlying inflation to 2.6% from 2.4% and raising the growth forecast to 2.1% from 1.4%. They also marginally lowered their unemployment rate projection for 2024 to 4% from 4.1%.

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