The Federal Reserve made a significant announcement on Wednesday, indicating that it plans to lower interest rates two more times this year. This decision comes after the Fed cut its benchmark federal funds rate by 50 basis points to a range of 4.75%-5.0% at the conclusion of its meeting on Wednesday.
Fed officials are projecting that the fed funds rate will decrease to 4.4% by 2024, signaling the possibility of an additional 0.50% rate cut later this year. The Fed has been incrementally reducing rates over the past year, with Wednesday’s 50 basis point cut being a standout move. The central bank is expected to cut interest rates two more times in 2024, as indicated in the updated economic forecasts released in its Summary of Economic Projections (SEP), including the “dot plot.”
According to the projections, 17 officials anticipate further easing this year, with only two expecting rates to remain steady. Seven officials predict one more cut, while nine foresee two additional cuts. One official even predicts three cuts by the end of the year.
In 2025, the majority of officials foresee the fed funds rate reaching 3.4%, lower than the previous forecast of 4.1%. This suggests the possibility of four additional rate cuts in 2025, followed by two more cuts in 2026 to bring the rate down to 2.9%.
These updated projections indicate that the Federal Reserve has initiated an easing cycle to ensure a soft landing for the economy, with stable price increases and robust employment. Inflation has moderated this year but remains above the Fed’s 2% target, influenced by higher-than-expected monthly “core” prices. The job market has also been closely monitored, especially after a slight increase in the unemployment rate to 4.3% in July, which has since decreased to 4.2%.
Overall, the Federal Reserve’s actions reflect a strategic approach to balancing economic factors and maintaining stability in the market.
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