Federal Reserve Chairman Jerome Powell testifies during the Senate Banking, Housing, and Urban Affairs Committee hearing titled “Semiannual Monetary Policy Report to Congress” in the Dirksen Building on Thursday, March 7, 2024.
Tom Williams | Cq-roll Call, Inc. | Getty Images
Fed members still expect three interest rate cuts in 2024 despite the improving outlook for economic growth.
The Federal Open Market Committee's March forecast for interest rate cuts, or the so-called dot chart, shows the federal funds rate averaging 4.6% in 2024. With the current federal funds rate in the range of 5.25% to 5.50%, The dot plot involves three reductions of 0.25 percentage points each.
The previous Summary of Economic Expectations (SEP) from December also showed three interest rate cuts in 2024.
However, the expected change in real GDP for 2024 was 2.1% in the March forecast, up from 1.4% in December. Core PCE inflation expectations also rose to 2.6% from 2.4%.
The updated forecast came after inflation reports for January and February dampened hopes that the Fed would control price increases. Traders had already dialed in expectations for interest rate cuts for this year ahead of the central bank's update on Wednesday.
“The September FOMC report continues to roll in [0.75%] “From rate cuts this year, even as core PCE estimates increased by 0.2 percentage point to 2.6%,” said Ian Lingen, head of US interest rates strategy at BMO Capital Markets. September because it indicates that the upward trend seen in inflation achieved early this year has been rejected by monetary policy makers.
Federal Reserve Chair Jerome Powell said in his press conference on Wednesday that the central bank had not completely dismissed recent inflation reports, though he said the January data may have been distorted by seasonal factors.
“I see the two together, and I think they haven't really changed the overall story, which is that inflation is gradually moving down, on a bumpy road sometimes, toward 2%,” Powell said.
There have been some smaller changes within the dot chart. In December, there was an even greater divide among individual Fed members, with two FOMC voters indicating no cuts in 2024 while another saw six cuts. The boldest prediction has now been pushed back, in the March forecast, to just four cuts.
In addition, the average forecast for the federal funds rate in 2025 rose to 3.9% from 3.6%, meaning one less cut. The long-term forecast for this benchmark rate rose to 2.6% from 2.5%.
