Fed kept interest rates unchanged, expecting 3 cuts

The US Federal Reserve (Fed) kept its policy rate unchanged at a 23-year high. Thus, the Fed has kept interest rates unchanged in 5 consecutive meetings. The statement stated that more confidence is needed regarding inflation for a rate cut. The Fed left its estimate for the federal funds rate unchanged at 4.6 percent, which it had predicted in December last year for the end of this year. Chairman Powell stated that it would be appropriate to slow down the pace of balance sheet reduction in the near term. The Fed kept its policy rate unchanged at its March meeting, keeping it between 5.25-5.50 percent. The interest rate decision was taken unanimously. The expectation was that interest rates would remain unchanged. The Fed has not changed interest rates since July. In a statement made after the 2-day meeting, it was stated that more confidence is needed regarding inflation for a rate cut. The text stated that recent indicators indicate that economic activity is growing at a solid pace. It was noted that employment gains are strong and the unemployment rate remains low, while inflation has fallen throughout the past year but remains high. It was reported that the pace of balance sheet contraction will be maintained as previously announced. The dot plots foresee a 75 basis point interest rate cut in 2024, in line with previous estimates. The median policy rate estimate was maintained at 4.6 percent for this year. The Fed’s estimate for the federal funds rate for 2025 was increased from 3.6 percent to 3.9 percent, and for 2026 from 2.9 percent to 3.1 percent. The long-term average interest rate expectation was also increased from 2.5 percent to 2.6 percent. Upward revision in growth and core inflation estimates The growth and core inflation estimates were revised upwards in the Fed’s projections. The 2024 growth estimate was increased from 1.4 percent to 2.1 percent, and the 2025 estimate was increased from 1.8 percent to 2 percent. The Fed maintained its 2024 inflation expectation at 2.4 percent and raised its 2025 expectation from 2.1 percent to 2.2 percent. The core inflation expectation for 2024 was raised from 2.4 percent to 2.6 percent. It was maintained at 2.2 percent for 2025 and 2 percent for 2026. The unemployment rate expectation for 2024 was lowered from 4.1 percent to 4 percent. Statements from Powell In his assessment at the press conference, Fed Chair Jerome Powell stated that inflation has eased significantly but is still high. Powell said it may be appropriate to start cutting interest rates at some point this year. Stating that the bank's securities assets have decreased by approximately 1.5 trillion dollars since the bank's balance sheet began to be reduced, Powell stated that they discussed issues regarding slowing the rate of decrease in assets at this meeting but did not make any decisions on this matter. The highlights from Powell's statement are as follows; “In the near term, it would be appropriate to slow the pace of balance sheet contraction. We continue to make progress in reducing inflation. The path to our goal is bumpy. We will neither overreact to the last two months of data nor ignore them. I do not expect interest rates to return to extremely low levels. Strong hiring alone is not a reason to delay rate cuts. We believe tight financial conditions are weighing on the economy. Somewhat elevated inflation in the first half of the year is normal, and recent data suggests the Fed was right to wait.” The Fed has hiked interest rates 11 times since March 2022, raising interest rates by a total of 525 basis points.