The Federal Reserve signaled Wednesday that it would cut interest rates twice more this year after slashing 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.
Federal Reserve officials expect the federal funds rate to fall to 4.4% in 2024. That suggests the Fed will cut rates by an additional 0.50% later this year. Aside from Wednesday’s whopping 50-basis-point cut, the Fed has made 25-basis-point increases over the past year or so, indicating the central bank expects to cut interest rates two more times in 2024. The previous projection in June had interest rates peaking at 5.1%.
Along with its policy announcement, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its “dot plot,” which maps out policymakers’ expectations for where interest rates might head in the future.
In total, 17 officials forecast further easing this year, and only two see rates holding steady for the rest of the year. Seven officials expect just one more cut, while nine officials expect two more cuts. One official predicts three cuts by the end of the year.
Next year, most officials expect the federal funds rate to reach 3.4%, down from the 4.1% they had previously projected. That suggests four more rate cuts in 2025. Officials expect two more cuts after that in 2026, bringing the federal funds rate down to 2.9%.
The updated projections suggest the Federal Reserve has begun its long-awaited easing cycle as the central bank attempts to achieve a soft landing for the economy, in which price increases stabilize while employment remains strong.
Inflation has moderated so far this year but remains above the Federal Reserve’s 2% annual target, pressured by higher-than-expected readings of monthly “core” prices in recent months.
The labor market has also been a particular focus for the Fed after the unemployment rate unexpectedly rose to 4.3% in July. It has since fallen to 4.2% as FOMC members debate whether the recent weakness in the labor market indicates the market is gradually cooling or weakening rapidly.
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