Fed still expects three rate cuts in 2024, but there's a twist

As expected, the Federal Reserve kept interest rates at a range of 5.25% to 5.50% following its two-day monetary policy meeting. But what economists and market participants were really interested in were new economic projections from Fed officials – the so-called “dot plot” projections.

The Fed’s dot plot showed a growing number of officials were coalescing around the view that rates would end 2024 at 4.50% to 4.75%, equivalent to three 25 basis point cuts, in line with December’s dot plot. However, fewer committee members anticipate more than three cuts. In December, five officials expected four or more quarter-point cuts in 2024. This time round, it was just one. Nine officials now expect three cuts, compared with six in December. The number expecting two remained the same at five.

The projections now signal core inflation will end the year higher and unemployment slightly lower than it predicted in December. Officials sharply upgraded the gross domestic product projections for 2024, with the economy now expected to expand 2.1%, compared with December’s median forecast of 1.4%.

Officials also predict inflation will end the year at 2.4% — in line with previous estimates — and won’t hit the Fed’s 2% target until 2026, while unemployment will edge up to 4% from 3.9%, previously.

Fed Chair Jerome Powell downplayed recent inflation data, which was hotter than expected. He said it does not change the overall story, “which is that of inflation moving down gradually, on a somewhat bumpy road.” He noted the Fed must be careful when starting its rate cuts, which will be sometime later this year, saying officials need greater confidence inflation is moving sustainably lower before easing monetary policy.