Fed Keeps Rates Unchanged, Signals One Rate Cut This Year

The Federal Reserve left its key interest rate policy unchanged on Wednesday, while officials predicted one rate cut this year at the latest monetary policy meeting.

After the conclusion of their two-day Federal Open Market Committee (FOMC) monetary policymaking meeting, the Fed voted to leave its policy rate at a range of 5.25 percent and 5.5 percent.

In a post-meeting statement, the monetary authorities noted that “there has been modest further progress toward” achieving the central bank’s 2 percent inflation target.

“Inflation has eased over the past year but remains elevated,” the FOMC statement said, adding that officials will not cut rates until sufficient evidence supports such a decision.

“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the statement said. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Additionally, the rate-setting committee members agreed to continue reducing its holdings of Treasury securities and mortgage-backed securities.

Summary of Economic Projections

According to the Summary of Economic Projections (SEP), the Fed now expects just one rate cut this year, leaving the median policy rate at 5.1 percent by the end of 2024.

Moreover, the median federal funds rate is expected to be 4.1 percent in 2025, up from 3.9 percent in the March projection. The median policy rate is anticipated to be 3.1 percent in 2026, unchanged from the March meeting.

Real GDP growth stayed at 2.1 percent in 2024 and 2 percent in 2025 and 2026. The unemployment rate is still seen at 4 percent this year, but the jobless rate forecast was revised higher from 4.1 percent to 4.2 percent in 2025. The unemployment rate for 2026 was also adjusted higher from 4 percent to 4.1 percent.

Projections for the personal consumption expenditures (PCE) price index, which is the central bank’s preferred inflation measurement, was adjusted higher from 2.4 percent in March to 2.6 percent at the June meeting. PCE inflation was also seen slightly higher in 2025, from 2.2 percent to 2.3 percent.

Core PCE, which strips the volatile food and energy sectors, is predicted to be 2.8 percent this year, up from 2.6 percent at the March meeting. Core PCE is expected to be 2.3 percent next year, up from 2.2 percent in the previous SEP data.

Market Reaction

The financial markets were mixed following the policy announcement.

The Dow Jones Industrial Average erased its gains. The Nasdaq Composite Index kept its gains largely intact, rising 1.65 percent. The S&P 500, which touched an all-time high, was still up nearly 1 percent.

U.S. Treasury yields were still firmly in the red, with the benchmark 10-year yield down to 4.285 percent.

The U.S. Dollar Index (DXY), a gauge of the greenback against the basket of currencies, was still down at 104.50.

In recent weeks, Fed officials, from Minneapolis Fed President Neel Kashkari to New York Fed chief John Williams, have endorsed the idea of keeping rates at their highest levels in more than two decades until there is more positive inflation data.

Minutes from last month’s policy meeting suggest that “various” individuals support pulling the trigger on one more rate hike to vanquish inflation effectively.

But while investors have not penciled in a rate hike, traders do believe the Fed will hold off on a rate cut until September or November, according to the CME FedWatch Tool.

From The Epoch Times