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Fed Holds Rates Steady, Signals One Cut This Year
Today, the Federal Reserve kept its key interest rate unchanged and indicated that only one rate cut is expected before the end of the year. This decision follows a two-day meeting of the Federal Open Market Committee (FOMC), which also signaled that it believes the long-run interest rate is higher than previously indicated.
The committee's post-meeting statement echoed previous language, stating that inflation has eased over the past year but remains elevated. However, it noted "modest further progress" toward the Fed's 2% inflation objective, a slight improvement from the previous statement.
The FOMC's "dot plot" of individual participants' rate expectations showed a more aggressive cutting path in 2025, with four reductions totaling a full percentage point anticipated. For the period through 2025, the committee now sees five total cuts equaling 1.25 percentage points, down from six in March. If these projections hold, the federal funds rate benchmark would be at 5.1% by the end of this year.
The committee also raised its 2024 outlook on inflation to 2.6%, or 2.8% when excluding food and energy. Both inflation projections were 0.2 percentage points higher than in March. The Fed's preferred inflation gauge, the Commerce Department's personal consumption expenditures price index, showed respective readings of 2.7% and 2.8% for April.
The decision comes during a volatile year for markets, with investors hoping the Fed would start easing after it raised benchmark rates to their highest level in some 23 years. The federal funds rate, which sets overnight borrowing costs for banks, is targeted in a range between 5.25%-5.5%, the result of 11 rate increases between March 2022 and July 2023.
Earlier in the day, the Bureau of Labor Statistics released the consumer price index for May, showing that inflation was flat on the month while the annual rate edged lower from the rate in April to 3.3%. This is still well above the Fed's 2% target but considerably below the peak of just over 9% seen nearly two years ago.
The first quarter of 2024 saw economic data soften, with GDP rising at just a 1.3% annualized pace. April and May have been a mixed bag for data, but the Atlanta Fed is tracking GDP growth at 3.1%, a solid pace especially in light of persistent recession worries.
Inflation data has been resilient and has posed problems for central bankers. The year began with markets expecting a vigorous pace of rate cuts, only to be thwarted by sticky inflation and statements from Fed officials that they are unconvinced that inflation is heading back convincingly to target.
Original Article: https://www.cnbc.com/2024/06/12/fed-meeting-today-on-interest-rate.html
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