The US Federal Open Market Committee (FOMC) has maintained its previous forecast of three 0.25 point rate cuts in 2024. On the other hand, for 2025, the Bank has reduced the number of rate cuts expected in 2025, given the recent upside in inflation.
At its regular meeting held on March 19-20, the FOMC decided to keep its key policy interest rate unchanged. The decision was unanimous. Interest rates were left unchanged for the fifth consecutive session. The target range for the federal funds (FF) interest rate is 5.25-5.5%. He indicated that there is no change in the policy of cutting interest rates this year for the first time since March 2020, but according to the median forecast of FOMC participants, the number of interest rate cuts in 2025 is three, compared to last December. This has decreased from 4 times.
FOMC statement: Employment growth remains strong, inflation remains high
When asked at a post-meeting press conference whether the FOMC would lower policy interest rates at the May or June FOMC meeting, Federal Reserve Chairman Jerome Powell declined to give a direct answer, saying that he did not intend to lower interest rates for the first time. He reiterated his previous statement that it is likely to happen “at some point within the year.”
He didn’t take recent data showing an upward trend in inflation as particularly important, saying, “It’s still likely that most people believe we’ll reach that level of confidence and that a rate cut will happen.” Ta.
Powell also said the data supports the Fed’s cautious approach to starting rate cuts, and officials would like to see more evidence that inflation is on track to its 2% target. he added.
The latest statement is largely the same as in January, saying, “The Committee does not believe that a reduction in the target range would be appropriate until it has increased confidence that inflation is sustainably moving toward 2 percent.” Guidance maintained.
Balance sheet
The statement reiterated the company’s policy to continue shrinking its balance sheet by up to $95 billion (approximately 14.4 trillion yen) every month. The FOMC had scheduled a discussion on balance sheets at this meeting. Some officials, including Dallas Fed President Logan, have said they believe the pace of compression will eventually need to slow.
Chairman Powell told a news conference that it would be appropriate to slow the pace of balance sheet shrinkage “very soon.”
“The decision to slow down the pace of run-off (reduction in securities holdings due to redemption) does not mean shrinking the balance sheet, but it will allow us to approach the final level more gradually,” the chairman said. “In particular, the slowing of the run-off will ensure a smooth transition and reduce the likelihood of stress in money markets.”
The FOMC has been raising the federal funds rate target by more than 5 percentage points since March 2022, but officials have emphasized that they will not rush to cut rates until they are confident that inflation will be contained.
Powell said the better-than-expected inflation readings earlier this year did not change the perception that the slowing pace of price increases does not change the view that the economy is on a “sometimes bumpy road.”
“It’s going to be a bumpy road,” the chairman said, adding, “We’ve said that all along. We’re going through a bumpy road right now.” He added: “That’s why we’re taking a cautious approach to this issue.”
Interest rate/economic forecast
The median forecast of FOMC participants is that the federal funds rate will reach 4.6% by the end of 2024, but individual participants’ forecasts vary. A dot plot (a map of interest rate forecast distribution) shows that while 10 people predicted that interest rates would be cut by 0.25 points three times this year, nine people predicted that there would be two or fewer.
Dot plot (interest rate forecast distribution map, as of March meeting)
Source: FRB
Officials emphasized that the forecasts do not represent a set plan, and that individual forecasts will change based on further available inflation and labor market data.
The latest forecast also slightly revised upward expectations for long-term interest rates, with the median expected to be 2.6%, up from 2.5% previously.
There were also changes to forecasts for inflation and economic growth in 2024. The underlying inflation rate has been raised to 2.6% from the previous forecast (2.4%), and the growth rate has also been raised to 2.1% from the previous forecast (1.4%). The unemployment rate for 2024 is 4%, slightly lower than the previous forecast (4.1%).
Economic forecasts for 2024 by FOMC members: (table)
Original title:Fed Signals Three Cuts Still Likely, Despite Inflation Uptick(excerpt)
(Updates to add Chairman Howell’s remarks)