Federal Reserve still foresees 3 rate cuts this year but envisions higher rates in future

The Fed kept their benchmark rate unchanged for a fifth straight time, but warned of changes in the future that may impact loan rates.WASHINGTON — Federal Reserve officials signaled Wednesday that they still expect to cut their key interest rate three times in 2024 despite signs thatstayed surprisingly high at the start of the year. Yet they foresee fewer rate cuts in 2025, and they slightly raised their inflation forecasts.

Speaking at a news conference, Chair Jerome Powell noted that inflation has cooled considerably from its peak. But, he added,"inflation is still too high, ongoing progress in bringing it down is not assured and the path forward is uncertain.” For 2025, though, the policymakers now foresee only three rate cuts, down from four in their December projections. And they expect “core” inflation, which excludes volatile food and energy costs, to still be 2.6% by the end of 2024, up from their previous projection of 2.4%. In January, core inflation was 2.8%, according to the Fed's preferred measure.

When the Fed raises its benchmark rate above the neutral rate, it seeks to slow growth and tame inflation. If the neutral rate is actually higher than the Fed had thought, it means its benchmark rate should be higher, too, to cool the economy and inflation. Though consumer inflation has tumbled since mid-2022, it has remained stuck above 3%. And in the first two months of 2024, the costs of services, like rents, hotels and hospital stays, remained elevated. That suggested that high borrowing rates weren’t sufficiently slowing inflation in the economy’s vast service sector.

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