The Fed is Holding Rates For Now
Fed moves cautiously as interest rates continue to be high.
The Federal Reserve, as anticipated, maintained interest rates during its recent meeting and indicated a likelihood of multiple cuts by the year-end. The decision keeps the benchmark borrowing rate unchanged within a range of 5.25% to 5.5%, a level sustained since July 2023.
Fed officials foresee three quarter-percentage point cuts by the end of 2024, marking the first reductions since the early days of the Covid pandemic. This rate is presently the highest in over 23 years and impacts various consumer debts.
Chair Jerome Powell, while acknowledging the absence of specific timing for the cuts, emphasized the Fed's readiness to adjust policy depending on economic data. Markets, following the meeting, indicate a substantial probability of the first cut occurring in June.
The Fed's economic projections reveal an accelerated GDP growth forecast for this year, now at 2.1%, up from the previous estimate of 1.4% in December. The unemployment rate projection slightly decreased to 4%, while core inflation is expected to reach 2.6%.
The Fed's post-meeting statement remained largely unchanged from January, with a unanimous decision to maintain rates. Powell's comments echoed a cautious approach, emphasizing the need for sustained evidence of inflation deceleration.
Expectations now align for the first rate cut in June, followed by subsequent reductions, as the Fed maintains a patient, data-driven stance. However, decisions regarding the balance sheet reduction program were deferred, with discussions ongoing about the timing and extent of potential adjustments.