Federal Reserve officials signaled Wednesday that they still expect to cut their key interest rate three times in 2024 despite signs that inflation stayed surprisingly high at the start of the year. Yet they foresee fewer rate cuts in 2025, and they slightly raised their inflation forecasts.
After ending their latest meeting, the officials said they kept their rate unchanged for a fifth straight time.
In their new quarterly projections, Fed officials forecast that stronger growth and stubborn inflation would persist this year and next. As a result, they projected that interest rates would have to stay slightly higher for longer.
They now foresee three rate cuts occurring in 2025, down from four in their December projections. They also expect “core” inflation, which excludes volatile food and energy costs, to still be 2.6% by the end of 2024, up from their previous projection of 2.4%. In January, core inflation was 2.8%, according to the Fed's preferred measure.
SEE MORE: Inflation rate ticks up as Fed decides on interest rates
As a whole, their forecasts suggest that the policymakers expect the U.S. economy to continue enjoying an unusual combination: A healthy job market and economy in tandem with inflation that continues to cool — just more gradually than they had predicted three months ago.Most economists have pegged the Fed’s June meeting as the most likely time for it to announce its first rate cut, which would begin to reverse the 11 hikes it imposed beginning two years ago. The Fed’s hikes have helped lower annual inflation from a peak of 9.1% in June 2022 to 3.2%. But they have also made borrowing much costlier for businesses and households.Rate cuts would, over time, lead to lower costs for home and auto loans, credit card borrowing and business loans. They might also aid President Joe Biden’s reelection bid, which is facing widespread public unhappiness over higher prices and could benefit from an economic jolt stemming from lower borrowing rates.
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