Fed holds rates steady, indicates only one cut coming this year

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The Federal Reserve on Wednesday kept its key interest rate unchanged and signaled that just one cut is expected before the end of the year. The Federal Open Market Committee also indicated that it believes the long-run interest rate is higher than previously indicated. “In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective,” policymakers wrote in a statement.

The Federal Reserve on Wednesday kept its key interest rate unchanged and signaled that just one cut is expected before the end of the year.

With markets hoping for a more accommodative central bank, Federal Open Market Committee policymakers following their two-day meeting took two rate reductions off the table from the three indicated in March. The committee also signaled that it believes the long-run interest rate is higher than previously indicated.

New forecasts released after this week’s two-day meeting indicated slight optimism that inflation remains on track to head back to the Fed’s 2% goal, allowing for some policy loosening later this year.

“Inflation has eased over the past year but remains elevated,” the post-meeting statement said, echoing language from the last statement. In the only substantive change, the new statement followed with, “In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective.”

The previous language said there had been “a lack of further progress” on inflation.

Traders seemed encouraged by these comments, with the S&P 500 jumping to a record Wednesday after the statement was issued.

Aggressive cutting seen for 2025

For the period through 2025, the committee now sees five total cuts equaling 1.25 percentage points, down from six in March. If the projections hold, it would leave the federal funds rate benchmark at 4.1% by the end of next year.

Another significant development occurred with the projection for the long-run rate of interest, essentially a level that neither boosts nor restricts growth. That moved up to 2.8% from 2.6%, a nod that the higher-for-longer narrative is gaining traction among Fed officials.

In a further indication of a hawkish bent from central bankers, the dot plot showed four officials in favor of no cuts this year, up from two previously.

Return to 2% target

Elsewhere in the FOMC’s

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