Federal Reserve holds interest rates steady, maintains forecast for 3 rate cuts in 2024

The Federal Reserve on Wednesday held interest rates steady and made no changes to its forecast that it will be necessary to cut rates three times in 2024.

The central bank’s benchmark interest rate remained in a range of 5.25%-5.50% at the conclusion of its latest policy meeting on Wednesday, the highest since 2001.

While maintaining forecasts the Fed would need to lower this rate by 0.75% by the end of this year, the Fed’s policy announcement said the central bank does, “not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

Nine officials that offered forecasts on Wednesday see the central bank needing to cut rates three times this year; five officials believe two cuts will be needed.

Forecasts for 2025 interest rate cuts, however, were tempered slightly in Wednesday’s updated projections, with officials now expecting that three additional rate cuts will be needed next year, down from the four expected in December.

Officials also upped their inflation outlook to 2.6% this year from 2.4%; FOMC members still expect inflation to reach 2.2% next year.

“Inflation has eased over the last year but remains elevated,” the statement reiterated. “The Committee remains highly attentive to risks.”

The decision to stay the course for three rate cuts this year — the same number of cuts forecast in December — comes after sticky inflation data was thought to push officials to scale back the number of cuts this year.

The Fed raised its expectations for economic growth in 2024, but still expects it will be necessary to cut rates three times this year.

Core consumer prices based on the Consumer Price Index showed an annual increase of 3.8% in February after rising 3.9% in January. These readings, while down from levels closer to 5.5% last year, are still nearly double the Fed’s 2% inflation target.

But the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures index, has showed better progress on the inflation front, rising 2.8% in January after a 2.9% rise in December.

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

FILE PHOTO: Federal Reserve Chair Jerome Powell holds a press conference following the release of the Fed's interest rate policy decision at the Federal Reserve in Washington, U.S., January 31, 2024. REUTERS/Evelyn Hockstein/File Photo

Federal Reserve Chair Jerome Powell. REUTERS/Evelyn Hockstein/File Photo (Reuters / Reuters)

The Fed also sharply revised up its outlook for the economy this year, with officials now expected growth to reach 2.1% in 2024, up from the 1.4% forecasted in December.

Officials also see the unemployment rate ending this year at 4%, down from a previous estimate of 4.1%, as the job market, while cooling, continues to show signs of strength and consumers continue to spend albeit at a slower clip. The statement noted job gains have “remained strong.”

As officials raised their growth outlook, they also increased their expectations for the longer run neutral rate, or the interest rate at which they believe they are neither boosting nor slowing economic growth, to 2.6% from 2.5%.

Separately, policymakers retained language in their statement that “the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.”

The decision was unanimous.

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