The US Federal Reserve (Fed) lowered its benchmark federal funds rate by 50 basis points to a range of 4.75% to 5.0% at the end of its meeting on Wednesday, signaling two more cuts this year.
Fed officials expect the federal funds rate to fall to 4.4% in 2024. This suggests the Fed will cut rates by another 0.50% this year. Aside from Wednesday’s massive 50 basis point rate cut, the Fed has moved in 25 basis point increments over the past year or so, suggesting the central bank expects two more rate cuts by 2024. It shows. The previous forecast in June showed that interest rates would peak at 5.1 points. %.
Along with the policy announcement, the Fed will release updated economic forecasts in its Summary Economic Outlook (SEP), including a “dot plot” that illustrates policymakers’ expectations about where interest rates are likely to go in the future. did.
A total of 17 officials expected further easing this year, with only two expecting rates to remain unchanged for the rest of the year. Seven officials expect only one more cut, while nine expect two more. One official predicts there will be three rounds of cuts by the end of the year.
Next year, most officials expect the federal funds rate to reach 3.4%, lower than the 4.1% they had previously expected. This suggests that there will be four more rate cuts in 2025. Officials expect two more rate cuts in 2026, bringing the federal funds rate down to 2.9%.
The latest forecasts suggest the Federal Reserve has begun a long-awaited easing cycle as the central bank attempts a soft landing for the economy where employment remains strong and price increases stabilize.
Inflation has slowed so far this year, but remains under pressure from higher-than-expected monthly “core” prices in recent months and remains below the Federal Reserve’s annual 2% target. Exceeds.
The Fed is also paying particular attention to the job market after the unemployment rate unexpectedly rose to 4.3% in July. The rate has since fallen to 4.2% as FOMC members debate whether recent labor market weakness indicates the market is gradually cooling or rapidly weakening. did.
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