Federal Reserve officials have affirmed their intention to reduce interest rates by three-quarters of a percentage point throughout this year, propelling US equity markets to historic highs.
The market’s response on Wednesday ensued following the Federal Open Market Committee’s unanimous decision to maintain rates at a 23-year high, ranging from 5.25 percent to 5.5 percent.
In addition to keeping rates steady, the central bank notably revised its projection for US economic growth upward for the current year, while acknowledging that inflation would be slightly higher than previously anticipated.
This latest announcement maintains the Fed’s trajectory to potentially initiate rate cuts as early as summer marking a transition from its focus on curbing inflation, which surged as the US economy emerged from the COVID-19 pandemic.
Furthermore, it implies that borrowing expenses and mortgage rates, which had seen significant increases in recent months, may commence a decline just ahead of the November presidential election.
“The economy is performing well,” remarked Fed Chair Jay Powell during the news conference following the FOMC announcement. Officials projected a 2.1 percent expansion in US gross domestic product for the year, up from their earlier forecast of 1.4 percent.
However, despite expectations for core inflation to reach 2.6 percent this year, slightly surpassing previous estimates, Powell indicated that the journey toward a soft landing might still be complex.
The apprehensions regarding inflation were mirrored in the Fed’s dot plot, which illustrates officials’ rate expectations. Although it indicated that rates would likely conclude 2024 between 4.5 percent and 4.75 percent—equivalent to three quarter-point cuts—fewer officials anticipated the central bank to contemplate even deeper cuts.
