MNI: Fed Signals Three 2024 Rate Cuts As Pause Extended

Federal Reserve officials held interest rates steady Wednesday at their highest level in 22 years while signaling they expect to cut them three times next year as inflation falls more than previously expected. 

The Summary of Economic Projections showed policymakers penciling in a median 4.6% rate of interest for the end of 2024 -- - down from 5.1% in the September projection -- and core PCE inflation ending next year at 2.4%, lower than the 2.6% September projection.

The Fed will take into account the lags and cumulative effects of policy in “determining the extent of any additional policy firming that may be appropriate,” the FOMC said in its last post-meeting statement of the year. The addition of the word “any” is a hint that policymakers largely believe they are done hiking rates.

It was the third straight meeting with no move in interest rates after an aggressive tightening streak that pushed borrowing costs from zero to 5.25-5.5% in just 16 months. The unanimous decision underscores the Fed’s focus on how long to keep monetary policy restrictive. 

Fed Chair Jerome Powell will face questions from reporters, including on whether a recent easing in financial conditions could undermine some of the central bank’s past tightening efforts. Officials had cited a spike in long-term rates that has since unwound as a reason not to raise rates further.  

Officials have expressed optimism regarding recent progress on the fight against inflation, but also warned that it’s too soon to declare victory in their effort to get price increases back to the central bank’s 2% goal. 

“Inflation has eased over the past year but remains elevated,” the Fed said. Data this week showed U.S. CPI rose 0.1% in November while core CPI picked up to 0.3% from 0.2% a month earlier. That left year-on-year core inflation at 4%.

Fed officials have recently cited signs of the demand and supply for labor coming into "better balance," though job growth remains firm, registering nearly 200,000 new jobs in November, while the unemployment rate fell to 3.7%.