The Federal Reserve announced Wednesday that it will cut interest rates just once this year, down from the three cuts the central bank expected in its previous March projection.
Fed officials see the fed funds rate peaking at 5.1% in 2024. That suggests the Fed will cut rates by 0.25%. The Fed has implemented 25 basis point steps over the past year, indicating that the central bank expects to cut rates once in 2024.
Read more: What the Fed’s interest rate decision means for bank accounts, CDs, loans and credit cards
Along with its policy announcement, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its “dot plot,” which charts policymakers’ expectations about the direction of interest rates in the future.
A total of fifteen officials predicted a rate cut this year, but it was a close call between one or two cuts. Eight officials estimate two cuts, while seven officials see only one cut. Four predict no cuts at all. It is striking that no official expects three cuts, compared to nine in March. Officials also don’t see interest rates moving higher in 2024, as they did in March.
Next year, a majority of officials expect the fed funds rate to reach 4.1%, suggesting there will be four more rate cuts in 2025 – up from the previous forecast of three.
The updated projections suggest the Federal Reserve will maintain a “higher for longer” policy stance as the central bank works to return inflation to its 2% target.
Immediately after the announcement, markets priced in a roughly 71% chance that the Federal Reserve would start cutting rates at its September meeting, up from about 53% the day before, according to data from CME Group. The markets had priced in between one and two cuts leading up to the release.
The central bank left interest rates unchanged at the end of its meeting on Wednesday within a range of 5.25%-5.5%. Earlier in the day, a cooler-than-expected inflation outlook provided welcome news for Fed policymakers, but is unlikely to change the central bank’s stance on rates.
The SEP indicated that the Federal Reserve expects core inflation to peak at 2.8% this year – higher than the March projection of 2.6% – before cooling to 2.3% in 2025 and 2.0% in 2026.
Officials see the unemployment rate holding steady at 4.0% in 2024, which is in line with the previous forecast. Unemployment is expected to rise to 4.2% in 2025 and fall to 4.1% in 2026.
The Fed maintained its previous forecast for US economic growth, with the economy expected to grow at an annual rate of 2.1% this year, before falling slightly to 2.0% in 2025 and remaining at that level in 2026.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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