Federal Reserve officials signalled that they still expect to cut their key interest rate three times this year but see fewer rate cuts in 2025.
Federal Reserve officials signalled that they still expect to cut their key interest rate three times in 2024 despite signs that inflation stayed surprisingly high at the start of the year. Yet they foresee fewer rate cuts in 2025, and they slightly raised their inflation forecasts.After ending their latest meeting, the officials kept their benchmark rate unchanged for a fifth straight time.
“The risks are really two-sided here,” Powell said. “We’re in a situation where if we ease too much or too soon, we could see inflation come back. And if we ease too late, we could see unnecessary harm to employment.”Rate cuts would, over time, lead to lower costs for home and auto loans, credit card borrowing and business loans. They might, which is facing widespread public unhappiness over higher prices and could benefit from an economic jolt stemming from lower borrowing rates.
The Fed’s officials signalled that they also now foresee their benchmark rate as being higher in the future than it was in recent years — high enough to keep inflation in check but low enough to keep the economy growing. They had long pegged this “neutral rate” at 2.5 per cent. But on Wednesday, the officials estimated that it’s now 2.6 per cent. If so, this means rates are less likely to return to the ultra-low levels that prevailed for years before the pandemic struck.
Two recent government reports pointed to higher-than-expected inflation. One showed that consumer prices jumped from January to February by much more than is consistent with the Fed’s target. The second showed that wholesale inflation came in surprisingly high — a possible sign of inflation pressures in the pipeline that could cause consumer price increases to remain elevated.
At the same time, the central bank faces a competing concern: If it waits too long to cut rates, a long period of high borrowing costs could seriously weaken the economy and even tip it into a recession.
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