Fed does not rule out two rate cuts in 2024

Fed Chairman Jerome Powell noted that the revised forecast is a conservative approach and left open the possibility of additional rate reduction. Federal Reserve officials released a startling change to their estimates for the number of interest rate cuts this year.

Following the two-day monetary policy meeting in Washington on Wednesday, policymakers released updated economic forecasts. According to their average estimates, Fed members now expect to cut borrowing costs just once in 2024 as opposed to three times as previously anticipated since the beginning of the year.

Fed members also increased their forecasts for inflation, despite the fact that stronger consumer price data released earlier in the day offered strong grounds for hope.

Most analysts believe that two interest rate reductions this year, beginning in September, are still possible. However, more data will help monetary officials feel more confident about their efforts against inflation.

The US Central Bank’s policy-making body, the Federal Open Market Committee, voted to maintain the benchmark interest rate at its highest level in almost two and a half decades, between 5.25% to 5.5%. As a result, for the sixth consecutive meeting, the committee opted to keep interest rates stable.

According to futures, investors are presently pricing in two rate cuts this year, with greater odds for the first one in September. The Bureau of Labour Statistics released data earlier in the day indicating that, following strong readings at the start of the year, the primary indicator of core inflation decreased in May for the second consecutive month.

Jerome Powell intimated that policymakers’ most recent quarterly projections might not completely account for the new index figures while characterising the CPI reading and the numbers released today as “encouraging.”

Powell noted that “generally the majority do not revise their forecasts when such crucial data is revealed in the middle of monetary policy sessions, despite the committee having been briefed on them. Officials increased their projection for 2024 inflation (excluding food and energy) from 2.6 percent to 2.8 percent, which is a modest increase over the current levels of inflation throughout the course of the year.

In an attempt to minimize these expectations, Jerome Powell said during the post-policy-decision press conference that “most” officials probably did not factor today’s lower-than-expected inflation reading into their economic “dots” (a reference to the “Dot Plot” of interest rate projections).

The Fed is unsure about how tighter monetary policy will affect the US economy when deciding when to reduce interest rates, although consumer spending and job growth have proven remarkably durable despite rising borrowing costs to their current levels. In the meantime, although it is still higher than the Fed’s 2% target, inflation has sharply reduced following a dramatic spike during the pandemic.

Divided Votes

The head of the Fed emphasized the division of votes among the committee and stated that officials were carefully assessing both positive and downside risks: According to the “dot chart,” eight officials anticipated two rate cuts this year, four members made no predictions, and seven officials anticipated just one.

In keeping with the consensus expectation, officials also increased their estimate of the point at which long-term interest rates will stabilize to 2.8% from 2.6% at the meeting in March. Following a modest increase in March, the US economy’s performance has recently shown resilience, which contributed to the increase.

While some Fed officials feel that rising borrowing costs won’t have the same negative impact on the economy as previously believed, others think that monetary policy will still be effective in bringing inflation down to the Fed’s objective of 2%.

“We will find out over time whether fiscal policy is tightening sufficiently”, Powell stated, adding that “Policy is tightening and having the desired effects, as the evidence clearly shows.”

Dollar performance

Following the US CPI surprise in May, the US dollar abruptly retreated from its recent higher trajectory, although the US Dollar Index (DXY) managed to regain some composure due to the Federal Reserve’s devotion to tightening monetary policy, and was last seen trading at 104.71, up only 0.03%, on early Thursday.


The US dollar index fell to its lowest points in three days as a result of falling US bond yields, a decline in the consumer price index, and the Federal Reserve’s anticipated decision to leave interest rates unchanged. Fed members are now returning to watch employment and inflation data in order to feel more confident about their decisions going forward. The weekly Initial Jobless claims are expected on Thursday, June 13, along with the Producer Price Index reading.