US Fed keeps rates unchanged for 5th time in a row, forecasts three cuts in 2024

The US Federal Reserve kept the key lending rates unchanged for the fifth straight time, even as it projected three upcoming rate cuts in calendar year 2024. For now, the benchmark rates would remain in the range of 5.25% to 5.5%, Fed Chair Jerome Powell announced on Wednesday, March 20.

Powell, while addressing the press, conceded that inflation in the US has exceeded expectations in January and February. However, the elevated prices would not derail the planned rate cuts this year, he indicated.

While the consumer price index grew by 3.1% year-on-year in January, it edged higher to 3.2% in February. The inflation data for the two months “haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road towards 2%,” Powell said.

Notably, 2% is the medium-term inflation growth target set by his team. Central banks across the world, including the Fed, tie their monetary policies to the targeted inflation rate.

In the Fed’s policy statement, inflation is expected to remain “elevated”, with the core inflation – that excludes volatile energy and food costs – seen to be growing at 2.6% in 2024. This is higher than the previous projection of 2.4%.

Despite the stronger-than-expected inflation forecast, 10 out of 19 Fed officials expect the benchmark rates to come down by 0.75% this year. The rate cuts would be executed in a phased manner, with a quarter-of-a-percentage point likely to be slashed in three rounds each.

The Fed decision at the end of its monetary policy review meeting on March 20 eased investor jitters, as indicated in the performance of the US stock market. The benchmark indices settled higher after the Fed projected three upcoming rate cuts.

At close, the Dow Jones Industrial Average climbed by 1.03%, S&P 500 was up 0.89% and the Nasdaq Composite gained by 1.25%.