Federal Reserve members still see three interest rate cuts in 2024 despite an improving outlook for economic growth.
The Federal Open Market Committee’s March projections for rate cuts, or the “dot plot,” shows a median Federal funds rate of 4.6% in 2024. With the current fed funds rate in a range of 5.25% to 5.50%, the dot plot implies three cuts of 0.25 percentage point.
The previous Summary of Economic Projections from December also showed three rate cuts in 2024.
However, the projected change in real GDP for 2024 was 2.1% in the March projection, up from 1.4% in December. Core PCE inflation projections also ticked up to 2.6% from 2.4%.
The updated projections came after a recent series of inflation reports from January and February that have dampened the hopes that the Fed has price increases under control. Traders had already been dialing back rate cut projections for this year ahead of Wednesday’s update from the central bank.
“The FOMC’s SEP continues to show [0.75%] of rate cuts this year, even as the core-PCE estimate was increased by 0.2 pp to 2.6%. We’ll argue this is the most relevant takeaway from the SEP because it suggests the upside seen in realized inflation early this year is being dismissed by monetary policymakers,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
Fed Chair Jerome Powell said in his press conference Wednesday that the central bank wasn’t completely dismissing the recent inflation reports, though did say that the January data may have been distorted by seasonal factors.
“I take the two of them together, and I think they haven’t really changed the overall story, which is that of inflation moving down gradually, on a sometimes bumpy road, toward 2%,” Powell said.
There were some smaller changes within the dot plot. In December, there was a bigger split among individual members, with two FOMC voters indicating zero cuts in 2024 and another seeing six cuts. The most aggressive prediction has been dialed back to just four cuts in the March projections.
Additionally, the median projection for the fed funds rate in 2025 rose to 3.9% from 3.6%, implying one fewer cut.
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