Fed dot plot suggests central bank will cut interest rates once in 2024, down from three cuts in March

The Federal Reserve announced Wednesday that it would cut interest rates just once this year, down from three reductions the central bank anticipated in its previous projections in March.

Fed officials predict the federal funds rate will peak at 5.1% in 2024. This suggests the Fed will cut rates by 0.25%. The Fed has moved in 25 basis point increments over the past year, indicating that the central bank plans to cut interest rates once in 2024.

Alongside its policy announcement, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its “dot plot,” which maps policymakers’ expectations for future paths in interest rates. ‘interest.

Fifteen officials anticipate one rate reduction this year, eight officials estimate two reductions, while seven officials envision only one reduction. Four of them predict no reduction. It’s worth noting that no official is planning three reductions, down from nine in March. Officials also do not anticipate a rate hike in 2024, as in March.

Next year, the majority of officials expect the federal funds rate to reach 4.1%, suggesting four additional rate cuts coming in 2025, up from three prior forecasts.

The updated projections suggest the Federal Reserve will maintain policy “higher for longer” as it works to return inflation to its 2% target.

Immediately after the announcement, markets were pricing in a roughly 71% chance that the Federal Reserve would begin cutting rates at its September meeting, up from around 53% the day before. according to CME Group data.

The central bank left interest rates unchanged in a range of 5.25% to 5.5% following its meeting on Wednesday. Earlier in the day, colder-than-expected inflation numbers brought good news to Fed policymakers, but they are unlikely to change the central bank’s stance on rates.

The SEP reported that the Federal Reserve expects core inflation to peak at 2.8% this year – higher than March’s projection of 2.6% – before calming to 2.3% in 2025 and to 2.0% in 2026.

Officials expect the unemployment rate to remain at 4.0% in 2024, in line with previous forecasts. Unemployment is expected to increase to 4.2% in 2025 before falling to 4.1% in 2026.

The Fed maintained its previous forecast for U.S. economic growth, with annualized growth of 2.1% this year, before slowing slightly to 2.0% in 2025 and remaining at that level through 2026.

Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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