Fed flags end of rate hikes, sees lower borrowing costs in 2024
WASHINGTON: Fed flags end of rate hikes the Federal Reserve held interest rates steady on Wednesday and signaled in new economic projections that the historic tightening of U.S. monetary policy engineered over the last two years is at an end and lower borrowing costs are coming in 2024.
In a fresh policy statement, U.S. central bank officials explicitly acknowledged the recent easing of inflation and hinted at a potential pause in further rate hikes. This marks a significant departure from their previous stance of aggressive tightening and a predisposition to raise rates.
A near-unanimous majority of 17 out of 19 Fed officials project that the policy rate will be lower by the end of 2024 than its current 5.25%-5.50% range, with the median projection indicating a three-quarters of a percentage point decrease.
This shift in tone and outlook is notable for an institution that had been hesitant to declare victory over last year’s inflation spike, which reached a 40-year high. The updated projections suggest a more optimistic view, with headline personal consumption expenditures inflation expected to end 2023 at 2.8% and further decrease to 2.4% by the end of the following year, approaching the Fed’s 2% target.
The projections also indicate a minimal impact on unemployment, with the rate expected to rise from the current 3.7% to 4.1%, aligning with September’s projections. Economic growth is anticipated to slow from an estimated 2.6% this year to 1.4% in 2024.
While officials retain the option to raise the Fed’s benchmark overnight interest rate if inflation makes a resurgence, recent trends suggest that such a move is becoming less likely. The overall economic projections align with the concept of a “soft landing,” where inflation slows without triggering a recession or a sharp increase in unemployment.
Investors, anticipating a shift in policy, had predicted a full percentage point cut in the policy rate by the end of next year, aligning closely with the central bank’s new projections. Fed Chair Jerome Powell is scheduled to provide further insights in a press conference later today.
Having raised the policy rate by 5.25 percentage points since March 2022 in response to rising inflation, the central bank has maintained a hold on the policy rate since July as inflation approaches its target. This strategic approach reflects the central bank’s evolving response to economic conditions.
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