US Fed keeps rates unchanged, 'Dot Plot' indicates only one 25 bps cut in 2024 | Key takeaways

The US Federal Reserve has kept the benchmark lending rates unchanged in the range of 5.25%-5.5%, and has reduced its forecast of rate cuts in 2024 from three to only one.

Following the two-day meeting of the Federal Open Market Committee (FOMC), the monetary body on June 12 said it has decided to maintain the status quo on interest rates for now.

The rates, unchanged since July 2023, are currently at a 23-year high. Even as inflation in the US has eased from the high of 7% logged in the post-Covid period, it remains far from the 2% target set by the Fed.

“Inflation has eased substantially, but is still too high. We are strongly committed to returning inflation to our 2% goal in support of a strong economy that benefits everyone," Federal Reserve Chair Jerome Powell said, in a press briefing in Washington after announcing the decision to keep rates steady.

The statement came hours after the US government released official data that showed inflation easing to 3.3% in May on an annual basis, defying the expectations of a marginal rise. In April, the rate stood at 3.4%.

'Dot Plot' revises rate cut forecast

The Fed's Summary of Economic Projections (SEP), informally known as the 'Dot Plot', has revised the rate cut forecast for this year. In March, the Dot Plot had indicated that there would be three rate cuts -- each of 25 basis points or 0.25% -- in calendar year 2024.

However, the Dot Plot now signals that there would only one rate cut of 25 bps this year.

What's the forecast for 2025?

By the end of 2025, the forecast indicates that the benchmark rates would range between 4% and 4.25%. This implied that the Fed sees a cumulative rate reduction of one percentage point next year.

What is projected for 2026?

The projections further point towards another one percentage point reduction by 2026-end. The key lending rates by then is seen in the bracket of 3% to 3.25%.

On being asked by reporters whether the SEP has taken into account the easing of inflation in May 2024, Powell said the data has been taken into consideration.

“We see today’s report on inflation as a progress and it will build confidence...But we don’t see ourselves as having the confidence that would warrant beginning to loosen policy at this time," the Fed chief said.

S&P 500 soars to record high

Despite the hawkish approach of Fed, the US stock market soared to close at record highs. S&P 500 breached 5,400 points for the first time, as it rose 0.8% to close at 5,420.

How other indices performed

NASDAQ Composite climbed 1.5% to log a third-straight record close of 17,608. However, the Dow Jones Industrial Average settled 0.1% lower at 38,712.21.