Federal Reserve sees progress on inflation but signals just one rate cut in 2024

12 June 2024, 20:24

Federal Reserve chairman Jerome Powell speaks during a news conference in front of the American flag
Federal Reserve. Picture: PA

The policymakers, as expected, kept their key rate unchanged at roughly 5.3%.

The US Federal Reserve officials said that inflation has fallen further towards their target level in recent months but signalled that they expect to cut their benchmark interest rate just once this year.

The policymakers’ forecast for one rate cut was down from a previous forecast of three, probably because inflation, despite having cooled in the past two months, remains persistently elevated.

In a statement issued after its two-day meeting, the Fed said the economy is growing at a solid pace, while hiring has “remained strong”.

The officials also noted that in recent months there has been “modest further progress” towards its 2% inflation target.

That is a more positive assessment than after the Fed’s previous meeting on May 1, when the officials said there had been “a lack of further progress” on inflation.

Still, the central bank made clear on Wednesday that further improvement is needed.

“We’ll need to see more good data to bolster our confidence that inflation is moving sustainably towards 2%,” chairman Jerome Powell said at a news conference after the Fed meeting.

The policymakers, as expected, kept their key rate unchanged at roughly 5.3%.

The benchmark rate has remained at that level since July of last year, after the Fed raised it 11 times to try to slow borrowing and spending and cool inflation.

Fed rate cuts would, over time, lighten loan costs for consumers, who have faced punishingly high rates for mortgages, car loans, credit cards and other forms of borrowing.

The officials’ rate-cut forecast reflects the individual estimates of 19 policymakers. The Fed said that eight of those officials projected two rate cuts and seven projected one cut. Four said they envisioned no cuts at all this year.

Federal Reserve chairman Jerome Powell walks towards a lectern
Federal Reserve chairman Jerome Powell (Susan Walsh/AP)

The Fed’s updated quarterly projections are by no means fixed in time. The policymakers frequently revise their plans for rate cuts – or hikes – depending on how economic growth and inflation evolve over time.

On Wednesday morning, the government reported that inflation eased in May for a second straight month, a hopeful sign that an acceleration of prices that occurred earlier this year may have passed.

Consumer prices excluding volatile food and energy costs – the closely watched “core” index – rose just 0.2% from April, the smallest rise since October. Measured from a year earlier, core prices climbed 3.4%, the mildest pace in three years.

Though inflation has tumbled from a peak of 9.1% two years ago, it remains too high for the Fed’s liking. The policymakers now face the delicate task of keeping rates high enough to slow spending and defeat high inflation without derailing the economy.

The central bank’s rate policies over the next several months could also have consequences for the presidential race.

Though the unemployment rate is a low 4%, hiring is robust and consumers continue to spend, voters have taken a generally sour view of the economy under President Joe Biden. In large part, that is because prices remain much higher than they were before the pandemic struck. High borrowing rates impose a further financial burden.

Inflation had cooled steadily in the second half of last year, raising hopes that the Fed could achieve a rare “soft landing”, whereby it would manage to conquer inflation through rate hikes without causing a recession.

But inflation came in unexpectedly high in the first three months of this year, delaying hoped-for Fed rate cuts and potentially imperilling a soft landing.

As part of the updated quarterly forecasts the Fed’s policymakers issued on Wednesday, they projected that the economy will grow 2.1% this year and 2% in 2025, the same as they had envisioned in March.

They expect core inflation to be 2.8% by the year’s end, according to their preferred gauge, up from a previous forecast of 2.6%. And they project that unemployment will stay at its current 4% rate by the end of this year and edge up to 4.2% by the end of 2025.

By Press Association

Latest World News

See more Latest World News

A series of Israeli strikes have been launched against the Houthi-controlled port city of Hodeidah in Yemen

Israel launches series of air strikes on Houthi-controlled city in Yemen day after group claim deadly attack on Tel Aviv

Holidaymakers have been left stranded during global IT outage

'We're not being given any information': Furious holidaymaker stranded in Rhodes tells of travel hell after IT outage

A highway bridge collapsed in northwest China.

At least 12 people dead and more than 30 missing after China bridge collapses due to flooding

Israeli occupation of Palestinian territories is unlawful, the International Court of Justice has ruled

Top UN court rules Israeli occupation of Palestinian territories 'unlawful', as Netanyahu slams 'false decision'

Shaikha Makhra announced her split on Instagram

Dubai princess announces divorce from husband via Instagram 'as he is occupied with other companions'

Evan Gershkovich, a Wall Street Journal reporter, was detained last March on spying charges

American journalist jailed for 16 years in Russia after being convicted of espionage

Dominic Reid and Prince Harry

Prince Harry's charity boss quits as head of Invictus Games days after duke sees backlash over veterans' award

CrowdStrike sign and logo at headquarters in Silicon Valley

What is CrowdStrike, the cybersecurity company ‘responsible’ for global IT failure? Microsoft outages explained

Keir Starmer welcomes Volodymyr Zelenskyy to Downing Street

Starmer greets Zelenskyy as Ukrainian President becomes first foreign leader to address UK cabinet since Bill Clinton

The outage is being felt across the world

Global IT outage LIVE: CrowdStrike outage could be ‘biggest cyber incident in history’ as GP surgeries and banks hit

Trump recounted the shooting on Saturday

'I'm not supposed to be here': Emotional Donald Trump recounts assassination attempt in first speech since shooting

Nancy Pelosi has said 'Biden can be convinced to quit the presidential race'

Nancy Pelosi 'says Biden can be convinced to quit race', after Obama says he 'must seriously consider' stepping aside

Obama tells allies Joe Biden must 'seriously consider' presidential bid

Obama tells allies Joe Biden must 'seriously consider' presidential bid as campaign hits back at 'baseless conjecture'

Six people were found dead at a luxury hotel in Bangkok died from cyanide, including Sherine Chong (left)

US woman insisted on making tea for victims before poisoning them in cyanide murder-suicide plot at Bangkok hotel

It follows a sharp rise in the number of abusive messages sent via the bank's app.

Santander bans swear words when sending money after abusers use 1p bank transfers to bypass restraining orders

European Commission President Ursula von der Leyen reacts after the announcement of the vote at the European Parliament in Strasbourg

Ursula von Der Leyen wins second term as top EU leader