Federal Reserve Chairman Jerome Powell testifies at a Senate Banking, Housing and Urban Affairs Committee hearing entitled “Semi-Annual Report on Monetary Policy to Congress” at the Dirksen Building on Thursday, March 7, 2024.
Tom Williams | Cq-roll Call, Inc. | Getty Images
Federal Reserve members still see three interest rate cuts in 2024, despite improving economic growth prospects.
March of the Federal Open Market Committee forecasts For rate cuts, or the so-called “dot plot”, the median federal funds rate is shown at 4.6% in 2024. Given that the current federal funds rate is in the range of 5.25% to 5.50%, the dot plot suggests three interest rate cuts. 0.25 percentage points each.
The previous Summary of Economic Projections (SEP) for December also showed three rate cuts in 2024.
However, the projected change in real GDP for 2024 was 2.1% in the March forecast, down from 1.4% in December. The core PCE inflation forecast also increased to 2.6% from 2.4%.
The updated forecasts came after inflation reports for January and February dampened hopes that the Fed could control rising prices. Traders had already abandoned forecasts for rate cuts this year ahead of the central bank’s announcement on Wednesday.
“The FOMC RPS continues to demonstrate [0.75%] rate cuts this year, even though the benchmark PCE estimate was raised 0.2 percentage points to 2.6%,” said Ian Lingen, head of U.S. rates strategy at BMO Capital Markets. “We argue that this is the most significant takeaway from the SEP because it suggests the potential for realized inflation to rise earlier this year that has been ignored by monetary policymakers.”
Fed Chairman Jerome Powell said at his news conference Wednesday that the central bank was not completely dismissing recent inflation reports, although he said the January data may have been skewed by seasonal factors.
“I look at those two factors together and I think they haven’t changed the overall picture, which is a gradual decline in inflation, sometimes along a bumpy road, to 2%,” Powell said.
There were some small changes in the scatter plot. In December, there was a larger split among individual Fed members, with two FOMC voters calling for zero cuts in 2024 and another calling for six cuts. The most aggressive forecast in the March forecasts was lowered to four cuts.
Additionally, the median forecast for the 2025 federal funds rate rose to 3.9% from 3.6%, representing one less cut. The long-term forecast for this base rate increased from 2.5% to 2.6%.