Federal Reserve leaves interest rates unchanged, but hints at cuts by 2024

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The Federal Reserve said Wednesday it will hold its benchmark interest rate steady, extending respite for borrowers after the fastest series of increases in four decades. The central bank also indicated it expects three rate cuts in 2024.

The Federal Reserve said in its policy statement that will keep the federal funds rate in a range of 5.25% to 5.5%, marking the third consecutive pause since July, when it last raised rates. Federal Bank officials also noted that the reference rate could be reduced by 0.75% percentage point in 2024, according to a chart document your projections.

“The appropriate level (of the federal funds rate) will be 4.6% at the end of 2024” if the Fed's economic projections hold, Fed Chair Jerome Powell said during a conference call to discuss today's decision.

Stocks rose modestly after the Federal Reserve's statement, with the S&P 500 gaining 0.5% immediately after the release of projections outlining the expected path for rates next year. Rate cuts by the Federal Reserve would reduce borrowing costs across the economy, providing relief to consumers who have been hit by higher costs for everything from mortgages to credit card debt.

“The market is celebrating that the Fed's points came closer to the market,” said Jon Maier, chief investment officer at investment company Global X.

Federal Reserve officials have raised the federal funds rate. 11 times since the adjustment cycle began in March 2022 to combat the highest inflation in 40 years. The strategy has largely achieved turn off inflation and even led prices to falll for some products, such as used cars, furniture, and appliances.

But higher borrowing costs have priced many home buyers out of the market and increased the expense of buying cars, carrying credit card debt and taking out loans.

Are you done with the walks?

Most Wall Street economists believe the Federal Reserve is done with further rate hikes, although they project the bank will likely keep the benchmark rate steady for several more months. The guessing game now is when authorities might start lowering rates, with most analysts predicting the central bank could make its first cut in May or June 2024.

“Importantly, Federal Reserve officials now expect to cut rates by 75 basis points next year, up from the 50 basis points they forecast in September,” High Frequency Economics said in a research note.

Still, Powell stressed in a press conference that the central bank would remain open to raising rates, if necessary. While he noted that inflation has fallen dramatically, he said there is still much to do to reach the bank's goal of 2%.

“It's really good to see the progress we're making,” Powell said. “We just need to see more, more continued progress to get back to 2%. Our job is to restore price stability.”

Expectations of rate cuts in 2024 have partly fueled the recent stock market rally.

Federal Reserve Chair Jerome Powell “will certainly recognize the gains in growth and inflation and may well characterize the runway for a soft landing as an expansion,” said David Kelly, chief global strategist at JP Morgan Asset Management in an email before the announcement.

“However, he will not want to trigger any further rally in the stock and bond markets towards the end of the year and, consequently, his comments may express more confidence in the prospects for real economic growth and more doubts about the decline in inflation than actually feel or the data justify it,” he added.

—With information from the Associated Press.



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