US: Fed keeps interest rates unchanged, projects three cuts in 2024

The US Federal Reserve left interest rates unchanged on Wednesday and forecasted that borrowing costs will come down somewhat by the end of the year as inflation eases, The Fed officials, in their March policy decision, held interest rates steady at about 5.3 per cent, where they have been set since July 2023.Fed officials also bumped up their estimates of economic growth and inflation in 2024.The decision leaves the Fed’s benchmark short-term rate at a 23-year high of 5.25% to 5.5% for a fifth straight meeting. After hiking the rate from near zero since March 2022 to wrestle down high inflation, the central bank has stood pat since July as consumer price increases moderated substantially.
In a statement after a two-day meeting, the Fed repeated that it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation (now close to 3%) is moving sustainably toward” the Fed’s 2% goal.At a news conference, Fed Chair Jerome Powell acknowledged that inflation flared in early 2024 after falling dramatically last year. But he said the uptick in January could have been caused by challenges the government faces as it seasonally adjusts the data. The February data was more worrisome, he said, but it appeared to show less of a spike than the previous month."The story is really essentially the same of inflation coming down gradually to 2% on a sometimes bumpy path," Powell said. "We're not going to overreact...to the two months of data. Nor are we going to ignore them."
The Fed said it expects the economy to grow 2.1% in 2024, well above its prior 1.4% estimate. It predicts 2% growth in 2025, up from its prior 1.8% projection.The economy grew a sturdy 3.1% in 2023 (as measured from the fourth quarter of 2022 to the fourth quarter of 2023). But it’s projected to slow this year as high interest rates, record credit card debt and dwindling COVID-related savings take a bigger toll on household spending. Retail sales were feeble in January and February.

(Ira Singh, Asstt Editor, Gandhinagar)