Fed Keeps Rates Steady and Forecasts Only One Cut This Year (2024)

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Jeanna Smialek

What to know about the Fed’s decision.

Federal Reserve officials left interest rates unchanged in their June decision and predicted that they will cut borrowing costs just once before the end of 2024, a sign that they plan to be patient before turning a corner in their fight against rapid inflation.

Central bankers lifted interest rates rapidly between early 2022 and July 2023, pushing them up to a more than two-decade high of 5.3 percent. They have held them steady since, hoping that higher borrowing costs will slow consumer and business demand enough to crush rapid price increases.

Inflation slowed steadily in 2023, coming down enough that Fed officials entered 2024 expecting to cut interest rates three times this year. But then price increases proved surprisingly stubborn at the start of the year — and policymakers had to push back their plans for rate cuts, afraid of lowering borrowing costs too early.

Now that picture is in the process of changing again. Fresh Consumer Price Index inflation data released Wednesday reaffirmed that the early 2024 inflation stickiness was a speed bump rather than a change in the trend: Price increases cooled notably in May. But it is getting too late in the year for the Fed to pull off the trio of rate cuts that they had expected as recently as March, the last time that policymakers released economic forecasts. Officials predicted in their fresh forecasts on Wednesday that they will lower rates just once, to 5.1 percent, before the end of 2024.

Fed officials gave no clear hint as to when rate cuts will start. They meet four more times this year: in July, September, November and December.

Jerome H. Powell, the Fed chair, said during a news conference following the release that officials are still looking for “greater confidence” that inflation is moving sustainably to 2 percent before cutting rates.

“The economic outlook is uncertain,” Mr. Powell said. “We remain highly attentive to inflation risks.”

Mr. Powell explained that moving policy “too soon or too much” could result in a reversal in progress on inflation, but that moving too late or too little could “unduly” weaken economic activity. He made it clear that the Fed’s fresh forecasts are not a firm plan or a decision — things could change.

The Fed’s single rate cut prediction might come as something of a surprise to investors and economists, many of whom had expected the Fed to still aim for two reductions before the end of the year. But the big revision came as Fed policymakers took a broader turn toward greater caution. The Fed’s forecasts showed that officials expect inflation to prove stickier than they had previously anticipated in 2024: Overall inflation could end the year at 2.6 percent, they predicted, up from 2.4 percent in their earlier estimate. Central bankers also forecast that the unemployment rate might tick up slightly more next year than they had previously anticipated.

Policymakers did adjust their statement to reflect that price increases have begun to cool again after stalling early in the year.

“In recent months, there has been modest further progress toward the committee’s 2 percent inflation objective,” the Fed’s statement said.

Mr. Powell suggested that the Fed’s inflation forecasts were “conservative” ones.

“We welcome today’s reading, and hope for more like that,” Mr. Powell said.

While the overall picture painted by the Fed’s economic forecasts was a wary one, it did have its silver linings.

Policymakers predicted that growth would hold up even as rates remained higher this year. And Fed officials expected to lower interest rates more rapidly next year, suggesting that some of the rate cuts that they had initially planned to make in 2024 were simply getting pushed back. They now expected to make four rate cuts in 2025, up from three previously. Rates were expected to end 2026 at 3.1 percent, unchanged from the March estimate.

But the Fed did increase its forecast for where interest rates will settle in the longer run. The long-run interest rate is a rough estimate of the setting that will keep the economy operating at an even keel over time, so if rates are above it you would expect them to slow the economy, and if they are below it you would expect them to speed it up. Officials now see that longer run “neutral” setting at 2.8 percent, up from 2.6 percent previously, which suggests that today’s policy setting is tapping the brakes on growth a little bit less aggressively than was previously understood.

June 12, 2024, 4:04 p.m. ET

June 12, 2024, 4:04 p.m. ET

Joe Rennison

Given the deluge of data today, investors are likely to feel somewhat relieved. The S&P 500 ended 0.8 percent higher, and although government bond yields, which underpin borrowing rates across the economy, retraced some of their earlier drop, the overall direction of travel remained positive.

S&P 500

June 18 June 20 June 21
5,450 5,460 5,470 5,480 5,490 5,500

June 12, 2024, 4:05 p.m. ET

June 12, 2024, 4:05 p.m. ET

Joe Rennison

Investors’ interest-rate forecasts have come broadly into line with the Fed’s, with an expectation of just one quarter-point cut this year. But that could still change if the summer brings data pointing to a weakening economy and lower inflation.

June 12, 2024, 4:05 p.m. ET

June 12, 2024, 4:05 p.m. ET

Joe Rennison

“Not quite 'mission accomplished' on the inflation front but almost,” said Peter Tchir, head of macro strategy at Academy Securities.

In Case You Missed It

June 12, 2024, 3:32 p.m. ET

June 12, 2024, 3:32 p.m. ET

Jeanna Smialek

Here are some takeaways from the Fed’s decision and Chair Powell’s comments:

• The Fed is in no rush to cut rates, because the job market is holding up. They want more confidence that inflation is coming down.

• In light of that, officials predicted just one cut in 2024, down from a forecast for three previously. Powell suggested that the forecast is not a firm plan, though.

• What will determine what happens next? Powell suggested it hinges on inflation slowing, but that rate cuts could also come if the job market falls apart unexpectedly.

• The overall takeaway here: This is shaping up to be a slog of a summer for Fed policy as officials take a wait-and-see approach and avoid declaring victory early.

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June 12, 2024, 3:27 p.m. ET

June 12, 2024, 3:27 p.m. ET

Jeanna Smialek

That’s a wrap. Chair Powell is done speaking following the Fed’s decision to keep interest rates steady in June.

June 12, 2024, 3:26 p.m. ET

June 12, 2024, 3:26 p.m. ET

Lydia DePillis

Thomas Simons, an economist with Jefferies, observes that the Fed’s threshold for how much consistent data it wants to see before changing policy may have risen. “The Fed is clearly shy about embracing the evidence of disinflation shown this morning after misjudging the transitory nature of inflation earlier in the cycle,” he wrote in a note.

June 12, 2024, 3:22 p.m. ET

June 12, 2024, 3:22 p.m. ET

Joe Rennison

Stocks have changed direction again and are now rising. Powell appears to have come through this news conference without upsetting markets. The S&P 500 is now up 1.3 percent for the day.

June 12, 2024, 3:28 p.m. ET

June 12, 2024, 3:28 p.m. ET

Joe Rennison

And now that Powell has stopped talking the S&P 500 is falling. It can sometimes take 24 hours or more for new information to fully work its way through markets on days like this.

June 12, 2024, 3:12 p.m. ET

June 12, 2024, 3:12 p.m. ET

Ben Casselman

Powell says the Fed is watching carefully signs that household finances have become more strained. Credit card balances and defaults have both gone up, but so far most households appear to be in decent financial shape, he says.

June 12, 2024, 3:22 p.m. ET

June 12, 2024, 3:22 p.m. ET

Ben Casselman

Powell does, however, acknowledge that the strains are most acute among lower-income Americans.

June 12, 2024, 3:22 p.m. ET

June 12, 2024, 3:22 p.m. ET

Lydia DePillis

It really does become a tough question: Is there a point at which high interest rates become a heavier burden than rising prices, especially for people who have to rely on credit?

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June 12, 2024, 3:10 p.m. ET

June 12, 2024, 3:10 p.m. ET

Ben Casselman

Asked again about housing costs, Powell sticks to the conventional wisdom that the slowdown in rents seen in the private-sector data will ultimately show up in official statistics. That process has taken longer than most forecasters expected, and some economists have begun to question whether the housing market might have changed in more lasting ways.

June 12, 2024, 3:09 p.m. ET

June 12, 2024, 3:09 p.m. ET

Lydia DePillis

Though Powell has always been emphatic that the election has no bearing on the committee’s decisions, the political implications of when they cut will mount as November approaches, since the first step down will likely prompt a stock market rally favoring President Biden.

June 12, 2024, 3:06 p.m. ET

June 12, 2024, 3:06 p.m. ET

Alan Rappeport

Powell says he has no “definitive answer” as to why people are not happier about the economy and lays out some positive indicators.

June 12, 2024, 3:06 p.m. ET

June 12, 2024, 3:06 p.m. ET

Lydia DePillis

Three does appear to be a trend for Powell’s purposes. The committee “didn’t take much signal” from hot inflation readings in the first two months of the year, but once they got a third, that prompted a change in attitude toward maintaining rates higher for longer.

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June 12, 2024, 3:01 p.m. ET

June 12, 2024, 3:01 p.m. ET

Ben Casselman

Housing costs have been one of the most stubborn categories of inflation, and progressive groups have criticized the Fed on the grounds that their policies will do little to help and might actually hurt. But Powell argues that the best thing the Fed can do for housing is to bring down inflation so that then it can cut interest rates, which would allow the housing market to normalize.

June 12, 2024, 3:02 p.m. ET

June 12, 2024, 3:02 p.m. ET

Ben Casselman

But, Powell adds, “there will still be a national housing shortage” after rates come down. That problem predates the pandemic, but high rates arguably contribute to it by discouraging building.

June 12, 2024, 3:01 p.m. ET

June 12, 2024, 3:01 p.m. ET

Lydia DePillis

Powell is asked what would be the point of cutting rates if, as the forecast contemplates, unemployment and inflation remain very similar at the end of the year to where they are now. He answers that eventually, high borrowing will take a toll. “If you just set policy at a restrictive level, eventually you will see real weakening in the economy,” he said.

June 12, 2024, 2:57 p.m. ET

June 12, 2024, 2:57 p.m. ET

Ben Casselman

“We can’t know what the future holds,” Powell says, summarizing the entire tone of this news conference.

June 12, 2024, 3:01 p.m. ET

June 12, 2024, 3:01 p.m. ET

Lydia DePillis

Powell is certainly giving a big shruggie emoji (in a manner of speaking) to most of these questions. “These dynamics can continue as long as they continue,” he said, noting that progress so far on inflation may keep on rolling — or not.

June 12, 2024, 2:56 p.m. ET

June 12, 2024, 2:56 p.m. ET

Ben Casselman

Given that the economy has stayed strong, and inflation has proved stubborn, some economists have been asking whether the Fed’s policies are actually doing much to tamp down growth — in economics jargon, whether rates are as “restrictive” as the Fed believes. Powell says he is confident that rates are restrictive, but says there are still many short-term factors complicating the picture.

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June 12, 2024, 2:55 p.m. ET

June 12, 2024, 2:55 p.m. ET

Lydia DePillis

Powell nods to the inconsistencies in last's weeks jobs report, where a survey that polls businesses showed much larger job gains than a survey of households, which has shown almost no employment increase over the past year. “Sometimes you cant reconcile the differences,” he said, meaning the Fed has to deal with uncertainty.

June 12, 2024, 2:52 p.m. ET

June 12, 2024, 2:52 p.m. ET

Joe Rennison

Markets have so far held relatively steady as Powell has been talking but the stock market is sliding a little as the chair acknowledges that hot inflation reports earlier in the year pushed up the forecast for inflation, in turn delaying when the Fed might start to cut interest rates.

June 12, 2024, 2:49 p.m. ET

June 12, 2024, 2:49 p.m. ET

Jason Karaian

As expected, the “dot plot” of interest-rate projections is a major topic of discussion between Powell and reporters. The median projection of Fed officials is regularly quoted as the clearest estimate of where policy is headed. You can see in the chart that the middle projection now suggests just one quarter-point cut by the end of the year, and several more in 2025.

Where Fed Officials Expect Rates Will Be

Fed Keeps Rates Steady and Forecasts Only One Cut This Year (26)

Actual

target rate

Latest

projections

6

%

5.5%

5

4

Each dot represents what one Fed official thinks the target rate should be at the end of this year and the next.

3

2

1

’21

’22

’23

’24

’25

Fed Keeps Rates Steady and Forecasts Only One Cut This Year (27)

Actual

target rate

Latest

projections

6

%

5.5%

5

4

Each dot represents what one Fed official thinks the target rate should be at the end of this year and the next.

3

2

1

’21

’22

’23

’24

’25

June 12, 2024, 2:48 p.m. ET

June 12, 2024, 2:48 p.m. ET

Ben Casselman

Powell says that the labor market was “overheated” two years ago, but has come into “much better balance” since then. But he doesn’t say directly whether he thinks it needs to cool further.

June 12, 2024, 2:49 p.m. ET

June 12, 2024, 2:49 p.m. ET

Ben Casselman

Powell does highlight the gradual increase in the unemployment rate as something that bears watching, but notes that other labor market indicators remain strong.

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June 12, 2024, 2:47 p.m. ET

June 12, 2024, 2:47 p.m. ET

Lydia DePillis

When asked whether a September rate cut is still possible if inflation continues to come in softer, even though only one cut is forecast, Powell cautioned against reading the different scenarios in the dot plot as a definitive plan. “I would look at all of them as plausible,” he said.

June 12, 2024, 2:45 p.m. ET

June 12, 2024, 2:45 p.m. ET

Jeanna Smialek

Powell notes that when there is a big data release like today, officials are allowed to update and “some people do, some people don’t. Most people don’t, but you have the ability to do that.”

June 12, 2024, 2:44 p.m. ET

June 12, 2024, 2:44 p.m. ET

Ben Casselman

As the question-and-answer session begins, Steve Liesman of CNBC points out that the Fed’s forecasts imply that core inflation will actually pick up as the year continues. Powell says that’s because some of the very low inflation readings from last year will drop out of the 12-month window that goes into year-over-year inflation calculations.

June 12, 2024, 2:44 p.m. ET

June 12, 2024, 2:44 p.m. ET

Ben Casselman

“We’re assuming good but not great numbers,” Powell says. If inflation remains as low as it did in May, then the data will look better than the Fed’s projections suggest.

June 12, 2024, 2:44 p.m. ET

June 12, 2024, 2:44 p.m. ET

Ben Casselman

“We welcome today’s reading and then hope for more like that,” Powell says.

June 12, 2024, 2:38 p.m. ET

June 12, 2024, 2:38 p.m. ET

Ben Casselman

Turning to monetary policy, Powell says Fed officials still “need to see more good data to bolster our confidence” that inflation is returning to their 2 percent target before they will decide it is time to cut rates.

June 12, 2024, 2:38 p.m. ET

June 12, 2024, 2:38 p.m. ET

Ben Casselman

However, he says, the Fed is “prepared to respond” if the labor market weakens unexpectedly, or if inflation falls faster than expected.

June 12, 2024, 2:39 p.m. ET

June 12, 2024, 2:39 p.m. ET

Ben Casselman

And Powell says that there has been “modest further progress” on inflation. Things are heading in the right direction — they just aren’t there yet.

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Fed Keeps Rates Steady and Forecasts Only One Cut This Year (2024)
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