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Spring may have sprung, but interest rates are holding steady. The Fed voted to keep the federal funds rate range at 5.25%–5.5% for the fifth straight time. It’s been at that level since July 2023.
But the central bank is keeping the door open for three rate cuts this year. The “dot plot,” or the graph of FOMC members’ predictions the Fed releases as part of its Summary of Economic Projections, showed the federal funds rate reaching a median of 4.6% by the end of 2024, which would indicate three more cuts of 0.25%.
“We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Fed Chair Jerome Powell said at a news conference, the CNBC reported.
The Federal Reserve’s favored inflation indicator, the core Personal Consumption Expenditures (PCE) price index, came in at 2.8% in January, versus 4.7% in January 2023. The Fed’s goal is to bring inflation down to 2%.
Going into 2024, some analysts had predicted six rate cuts over the course of the year. But the economy proved unexpectedly strong. In its economic predictions, the central bank foresaw GDP growth reaching 2.1% in 2024, revised upward from its December 2023 estimate of 1.4%.
“We had some inflation bumps this year but Jerome Powell’s not blinking,” David Russell, global head of market strategy for TradeStation, told CNBC. “Investors are relieved to see three cuts stay in the dot plot, supporting markets and risk appetite.”