Fed Signals Single Rate Cut in 2024 Amid Modest Inflation Progress

The Federal Reserve has decided to hold interest rates steady at 5.25-5.5%, defying some market expectations of multiple rate cuts this year. Instead, the Fed has signaled that it will likely make just a single rate cut, a modest quarter-point reduction. This cautious approach comes as the Fed updated its economic forecasts, now projecting a 2.6% inflation rate by the end of the year, slightly higher than the 2.4% anticipated in March. Fed Chair Jerome Powell has reiterated the importance of ensuring inflation is sustainably moving towards the 2% target before adjusting rates. The Fed’s median projection for the end of the year is a 5.1% interest rate, implying the anticipated single rate cut.Despite recent CPI data indicating a moderation in inflation, with a 0.1% decrease in May to 3.3% year-over-year, the Fed remains vigilant. The central bank’s updated long-term interest rate estimate has risen to 2.8% from 2.6%, suggesting that policymakers believe the economy needs more restraint to end the battle against inflation. While the Fed acknowledges ‘modest further progress’ towards its inflation target, it has made it clear that it will not cut rates until greater confidence is achieved that inflation is on a downward trajectory towards 2%.The Fed’s hawkish stance has led to a shift in market expectations, with some analysts now predicting that the official interest rate will fall rapidly next year, with reductions of one percentage point in 2025 and 2026. The Fed’s decision has sparked a mixed reaction, with US stocks jumping and the S&P 500 and Nasdaq Composite reaching new highs. The upcoming US presidential election on November 5 may further impact the Fed’s decisions.

Key points

• The Fed maintains interest rates at 5.

25-5.

5%, projecting only one quarter-point cut this year.

• The updated economic forecast shows a slight increase in the projected inflation rate to 2.

6% by the end of the year.

• Despite a modest decrease in May’s CPI to 3.

3%, the Fed remains cautious, requiring more confidence before rate reductions.