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Federal Reserve Now Expects Just One Rate Cut in 2024

The Federal Reserve announced on Wednesday that it is leaving its benchmark interest rate unchanged and is now planning only one rate cut in 2024.

This cautious approach comes as policymakers wait for more concrete evidence that U.S. inflation is easing.

The central bank has kept the federal funds rate in a range of 5.25% to 5.5%, the highest level in 23 years, since July 2023. The Fed’s reluctance to cut rates is due to persistent inflation, which, while showing signs of easing, remains above the 2% annual target.

Current Inflation Status

The government reported earlier on Wednesday that consumer prices rose 3.3% annually in May, a slight improvement from April’s 3.4%.

In its statement, the Fed noted “modest” progress in reducing inflation but cautioned that the pace of price increases “remains elevated.”

Consequently, consumers will likely face higher borrowing costs throughout 2024, as the Fed forecasts only one rate cut this year, down from the three reductions previously anticipated.

Impact on Borrowing Costs

The Fed’s rate policies significantly affect mortgage rates, auto loans, credit card rates, and other forms of consumer and business borrowing.

The revised outlook for rate cuts suggests that borrowing costs will remain high for an extended period.

“The fact that the Fed scaled back the number of rate cuts from three to one is going to disappoint those who were hoping for a summer rate drop,” said Bright MLS chief economist Lisa Sturtevant. “Mortgage rates, which have remained higher for longer, will likely remain in the high sixes until later this year.”

Fed’s Strategy and Future Projections

Fed Chair Jerome Powell has emphasized the importance of maintaining elevated rates until inflation approaches the 2% target to avoid the risk of renewed price spikes.

The Fed’s quarterly projections for future interest rate cuts are not fixed and are subject to change based on economic growth and inflation trends.

Policymakers often revise their plans for rate cuts or hikes in response to evolving economic conditions.

With information from CBS News

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