©Reuters. The Federal Reserve building is seen in Washington April 3, 2012. REUTERS/Joshua Roberts/File Photo
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By Howard Schneider and Ann Saphir
WASHINGTON (Reuters) – The Federal Reserve kept interest rates unchanged on Wednesday, but policymakers indicated they expect to cut them by another three-quarters of a percentage point by the end of 2024, despite slower progress toward its inflation target. of 2% of the US central bank. .
The Fed’s new policy statement describes inflation as still “elevated” and updated quarterly economic projections showed that the price index of personal consumption expenditures, excluding food and energy, increased at a rate of 2.6% by the end of the year, compared to 2.4% in published projections. in December.
Nonetheless, 10 of 19 Fed officials still expect the policy rate to fall by at least three-quarters of a percentage point by the end of this year, a median forecast first set in December and held despite recent stronger inflation than expected.
US stocks extended their gains following the release of the Federal Open Market Committee’s policy statement, while the US dollar slipped against a basket of currencies. US Treasury bond yields fell.
“The May meeting is not headed for a cut, barring a financial crash, as the Committee continues to seek further confidence that inflation is returning to target before kicking off the easing cycle,” said Michael Brown , market analyst at Pepperstone. .
As early as December, eleven officials had forecast cuts of three-quarters of a percentage point for the year, and the new policy outlook has come with an improved outlook for the economy. Growth is now forecast at 2.1% for the year compared to just 1.4% forecast in December, while the unemployment rate is expected to end the year at 4%, lower than the 4.1% forecast in December and slightly changed from the unemployment rate of 3.9%. recorded in February.
HIGHER LONGER TRAVEL RATE
A key measure, the long-term policy rate, was raised by a tenth of a percentage point, from 2.5% to 2.6%, reflecting the view of some Fed officials that the economy can support overall higher interest rates in the future.
The Fed began an aggressive round of monetary policy tightening two years ago in response to a surge in inflation that would eventually reach a 40-year high, but has kept its policy rate in the 5.25% range -5.50% since last July.
The latest projections show that the median policy maker expects the Fed’s benchmark overnight interest rate to fall by three-quarters of a percentage point in 2025, less than the 1 percentage point expected in December as part of a slightly lower rate cut path. slowed down, and by three-quarters of a point also in 2026, the same as previously anticipated.
“Economic activity expanded at a strong pace. Job growth remained strong and the unemployment rate remained low,” the Fed said in its unanimously approved statement after the end of a meeting two days.
The statement also reiterates that officials are still seeking “greater confidence” in a continued decline in inflation before they begin cutting interest rates, language adopted at the Fed’s Jan. 30-31 meeting and likely to remain in place until just before the first rate. reduction.
Fed Chair Jerome Powell will hold a press conference at 2.30pm EDT (6.30pm GMT) to elaborate on the policy statement and projections.
Investors before the meeting were firmly fixated on an expected start of rate cuts in June. This view was largely strengthened by the outcome of the meeting, but it also leaves the outlook for the median rate close to a turning point, a fact that could exert an outsized influence on future inflation reports.