The US Federal Reserve continues to maintain that it will cut rates three time by the end of the year after leaving the Rederal Funds rate unchanged at its 23 year high at its March meeting.
That’s despite a rise in its GDP growth forecast for the year, signalling to the markets that it is still confident that inflation is cooling.
The Federal Open Market Committee’s March quarter’s so-called “dot plot,” shows a median Federal funds rate of 4.6% in 2024.
It also shows that none of the members of the Open Market Committee see rates falling below 3% any time soon.
With the current Fed funds rate currently in a range of 5.25% to 5.50%, the dot plot implies three cuts of 0.25 percentage points this year and four in 2025.
In comments at the regular post meeting media conference, Fed chair, Jay Powell said the central bank still intend to cut rates before the end of this year, assuming economic growth continues.
“We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year,” Powell said.
Wall Street saw share prices firm afterwards, gold also edged up and the 10 year US bond yield fell, then rose, then settled back to be all but unchanged at around 4.30%.
While the previous projection from December’s dot plot also showed three rate cuts for this year, the March forecasts show a big change in GDP estimates which suggests the rate cuts will come despite expectations for a stronger economy this year.
GDP for 2024 is now forecast to rise 2.1%, up from 1.4% in December. Core PCE inflation (The Fed’s favoured inflation measure) projections is also higher at 2.6% from 2.4% in December. That was the forecast rate for 2026 as well.
Unemployed was trimmed slightly to a new forecast level of 4%.
But the dot plot wasn’t all blindly bullish – economists pointed out that there were some smaller changes. In December, there was a bigger split among individual members, with two FOMC voters indicating zero cuts in 2024 and another seeing six cuts. The most aggressive prediction has been wound back to just four cuts in the March plot.
Additionally, the median projection for the Fed funds rate in 2025 rose to 3.9% from 3.6%, implying one fewer cut.
Next week sees the release of the personal Consumption Expenditure data for February with its key readings on, spending and consumption by US consumers, and the outcomes for inflation, especially the key core reading.
Economists said the Fed’s post-meeting statement was almost identical to the one released after the last meeting in January save for an upgrade on its job growth assessment to “strong” from the January characterisation that gains had “moderated.” The decision to stand leave rates on hold was approved unanimously.
