Fed Holds Rates While Dropping Their Rate Cut Projections From 3 to 1
Key Takeaways
- Hold: The Fed maintained the federal funds rate at 5.25% for the seventh consecutive meeting.
- Cutting Cuts: The FOMC now projects only one rate cut in 2024, dropping from three in their March projections.
- Next 3 Years Despite upward revisions to other projections, The Fed still expects the federal funds rate to fall to 3.1% by the end of 2026
The Federal Open Market Committee (FOMC) has decided to maintain the federal funds rate at 5.25% for the seventh consecutive meeting, signaling a steady approach amid evolving economic conditions. This decision comes as the Committee balances strong job gains, low unemployment, and persistent, though easing, inflation.
What They Said: The FOMC’s statement on the current economic landscape noted, “Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective.”
Rate Predictions: While the decision to hold rates steady was anticipated, the more significant revelation from the Fed was its outlook on future rate cuts. The median projection now suggests only one rate cut in 2024.
- Divergence: This projection saw a divergence in opinions among FOMC members: four officials projected no cuts, seven anticipated one cut, and eight foresaw two cuts by the end of 2024. This cautious stance indicates the Fed’s vigilance in ensuring inflation is firmly under control before easing monetary policy.
- Looking Ahead: The FOMC expects the federal funds rate to fall to 4.1% by the end of 2025, a slight increase from their March projection of 3.9%. By the end of 2026, they still project the rate will drop to 3.1%. This gradual decline reflects the Fed’s expectation of a slow but steady return to more normalized interest rate levels.
Inflation: Inflation projections have been adjusted slightly higher, with the Fed now expecting inflation to be 2.6% in 2024 (up from 2.4%) and 2.3% in 2025 (up from 2.2%). The long-term target remains at 2.0% by 2026, suggesting that the Fed sees inflationary pressures easing gradually over the next few years.
Economic Growth: The Fed’s economic projections for GDP growth remain unchanged at approximately 2.0% over the next three years. However, they anticipate a slight uptick in unemployment, forecasting rates of 4.2% in 2025 and 4.1% in 2026. This indicates a belief that the labor market will remain relatively strong even as economic growth moderates.
Reaction: Bond yields, already down from the favorable CPI print this morning, held on to those gains with yield on the 10-year treasury falling to 4.27%, which is the lowest level since the end of March.
