Market Updates
Fed Holds Rates and Lowers Rate Cut Expectations In 2024
Brian Turner
12 Jun, 2024
Washington, D.C.
The Federal Reserve left the fed funds rate range unchanged between 5.25% and 5.50%, at the end of the two-day policy meeting.
The policymakers committee dialed back on the rate expectations and estimated rates to drop to 5.1% by the end of the year, down from March's estimate of as many as three rate cuts.
The committee also held 2024's GDP growth outlook at 2.1% and the unemployment rate at 4.0%.
But the committee revised its PCE inflation estimate to 2.6% from 2.4% in March and core inflation, which excludes food and energy price inflation, to 2.8% from 2.6%.
Fed officials estimated as many as four rate cuts in 2025, the fed funds rate to drop to 4.1% by the end of 2025, and additional cuts to bring down interest rates to 3.1% in 2026.
At the start of the year, investors were looking for as many as four cuts, but those expectations have been lowered after the persistent inflation over the last eighteen months.
Consumer price inflation peaked in June 2022 at 9.1%, and price pressures have steadily eased to 3% in June 2023.
However, inflation has failed to move lower over the last year and ranged between 3% and 4%, and core inflation has also failed to budge as well.
Despite eleven rate hikes in 2022 and 2023, inflation has failed to dip to the 2% target rate set by the Fed, indicating interest rates are not restrictive enough.
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