Fed signals 3 interest rate cuts in 2024

The Fed has held its key interest rate unchanged for the third consecutive time and set the stage for multiple cuts to come in 2024 and beyond. With inflation rates easing and the economy holding in, FOMC members voted unanimously to keep the benchmark overnight borrowing rate in a targeted range between 5.25%-5.5%.

The committee members penciled in at least three rate cuts in 2024, assuming quarter percentage point increments, less than market pricing of four but more aggressive than what officials had previously indicated.

FOMC members penciled in at least three rate cuts in 2024, less than market pricing of four but more aggressive than previously indicated. Markets had widely anticipated this decision, which could bring to close a cycle that has seen 11 hikes, pushing the fed funds rate to its highest level in over 22 years.

There was uncertainty about the FOMC’s ambition regarding policy easing. The committee’s “dot plot” indicates another four cuts in 2025, or a full percentage point. Three more reductions in 2026 would take the fed funds rate down to between 2%-2.25%, close to the long-run outlook.

The Fed’s favoured inflation measure for November is 3.1% year over year, and the economy has contracted. Authorities have emphasized that they are prepared to raise interest rates once again in the event that inflation spikes, but for the time being, they should exercise patience while they monitor the effects of earlier policy tightening actions on the US economy.