The Federal Reserve Holds Interest Rates Steady and Reiterates the Possibility of Three Rate Cuts This Year

Brian Turner
20 Mar, 2024
New York City

The Federal Reserve left its key lending rate unrevised, signaled possible rate cuts, and lifted its economic growth outlook.

The Federal Open Market Committee left the fed funds target rate range unrevised between 5.25% and 5.50% for the fifth meeting in a row and held rates steady at a 23-year high. 

The rate-setting committee, also noted in the so-called dot plot, anticipates three rate cuts that could bring down the fed funds rate range to between 4.50% and 4.75%. 

At the same time, the committee raised its forecast for rates at the end of 2025 to a range of 3.75% to 4.0% from the December forecast range between 3.50% and 3.75%.

Investors bid up stocks after the monetary policy decisions indicated the possibility of as many as three rate cuts in the next nine months. 

Policymakers noted that the economy is growing at a faster-than-anticipated pace, but that is not likely to fuel inflation as job market conditions are moderating but still healthy. 

The Federal Reserve also lifted its economic growth outlook for the current year to 2.1% from the previous estimate of 1.4%, for 2025 to 2.0% from 1.8%, and for 2026 to 2.0% from 1.9%. 

"The Committee 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%," the accompanying statement released by the Federal Reserve noted.

Despite the progress on the inflation front over the last year, the committee revised its inflation outlook, confirming that inflation is likely to stay elevated over the next two years. 

The committee also left its current year PCE inflation outlook at 2.4% but raised it to 2.2% for 2025 and also revised its outlook for the core rate of inflation to 2.6% from 2.4% but held steady its estimate at 2.2% in respective years. 

The latest unemployment rate projections suggest that the Federal Reserve anticipates the job market to remain healthy over the next two years. 

The committee lowered its estimate of the jobless rate in the current year to 4% from the previous estimate of 4.1% but left its estimate at 4.1% for the next year. 

Benchmark indexes on Wall Street turned sharply higher after the Federal Reserve reiterated its plan to lower rates over the next nine months. 

Investors interpreted the Fed's latest rate-cut decisions and projections as saying that policymakers are still ready to lower rates and support economic expansion and believe that inflation is high but is expected to slowly decline to 2% over the long run.