Fed ‘dot plot’ suggests central bank will cut interest rates one time in 2024, down from three cuts in March
The Federal Reserve signaled Wednesday it would lower interest rates just one time this year, down from the three cuts the central bank anticipated in its previous March projection.
Fed officials see the fed funds rate peaking at 5.1% in 2024. That suggests the Fed will cut rates by 0.25%. The Fed has moved in 25-basis-point increments over the last year or so, indicating the central bank expects to cut interest rates one time in 2024.
Along with its policy announcement, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its “dot plot,” which maps out policymakers’ expectations for where interest rates could be headed in the future.
Fifteen officials predict a rate cut this year while four see no cut. No officials project three cuts compared to the nine in March. No officials see rates ticking higher in 2024, consistent with March.
The updated projections suggest the Federal Reserve will maintain a “higher for longer” policy stance as the central bank works to bring inflation back down to its 2% target.
Immediately following the announcement, markets were pricing in a roughly 71% chance the Federal Reserve will begin to cut rates at its September meeting, up from about 53% the day prior, according to data from the CME Group.
The central bank left interest rates unchanged in a range of 5.25%-5.5% at its meeting that concluded on Wednesday. Earlier in the day, a cooler-than-expected reading on inflation delivered welcome news for Fed policymakers, but it is unlikely to change the central bank’s stance on rates.
The SEP indicated the Federal Reserve sees core inflation peaking at 2.8% this year — higher than March’s projection of 2.6% — before cooling to 2.3% in 2025 and 2.0% in 2026.
Officials see the unemployment rate holding steady at 4.0% in 2024, matching the previous forecast. Unemployment is expected to tick higher to 4.2% in 2025 before coming down to 4.1% in 2026.
The Fed expects the economy to hit 2.1% GDP growth this year — matching March’s projection — before ticking down slightly to 2.0% in 2025 and remaining at that level through 2026.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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