MNI: Fed Sticks To Three Cuts This Year, Hold Rates

Federal Reserve officials said Wednesday they need more confidence inflation will keep falling before cutting interest rates, which they expect to do three times this year, as they unanimously left borrowing costs on hold at 23-year highs for a fifth meeting in a row.

Policymakers see the federal funds rate ending 2024 at 4.6% on median, unchanged from the December projection, and core PCE inflation closing the year at 2.6%, up from 2.4%.

The Fed revised up its expectations for the fed funds rate in 2025 and 2026, and pushed up its view of the long-run funds rate seen as a proxy for the natural rate or r-star to 2.6% from 2.5%.

"The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%," the FOMC said in its policy statement.

The FOMC bumped up its projection for GDP this year to 2.1% from 1.4%.

Fed Chair Jerome Powell has said the central bank intended to discuss when to begin slowing the pace of balance sheet runoff at this meeting, but there was no new information on QT in the statement.

POWELL QUESTIONS

Powell will face questions about the Fed's plans for rates and the balance sheet this year amid inflation releases that have been just stubborn enough to stymie any hopes for imminent easing, with annual core CPI coming in at 3.8% for February.

The chair recently told Congress the Fed is "not far" from gaining the kind of confidence it needs that inflation is returning to the 2% goal to allow for reductions in interest rates.

Before the decision, markets were pricing in about a 50% chance of a June cut. That's a major reversal from December, when a dovish interpretation of the Fed's messaging led markets to pencil in as many as six rate cuts -- which were supposed to start at this meeting.

Part of the reason the Fed appears to be delaying rate cuts is that the economy still seems to be firing on all cylinders and the job market, while not as hot as at the height of a post-pandemic hiring boom, remains very strong by any historical measure.

The economy added 275,000 new jobs in February while the jobless rate rose modestly to 3.9%.