The Federal Reserve kept interest rates at a 23-year high Wednesday, reducing its forecast of rate cuts this year to one from three earlier.
Since July of last year, the Fed’s benchmark fed funds rate has remained between 5.25% and 5.50%.
The central bank expects to decrease interest rates once in 2024, down from three in March.
It was a tight call on the revised median rate drop forecast for this year. Eight officials projected two cuts this year, while seven predicted only one. Four officials reported no cuts this year.
At the same time, Fed officials raised their collective projection for the number of cuts planned next year. They now expect four further rate cuts in 2025. That is up from the previous projection of three.
Fed officials and markets were initially more bullish about lower rates, forecasting up to six quarter-point rate cuts this year. However, that changed this spring after a spate of higher-than-expected inflation statistics in the first quarter spurred Fed officials to indicate they’d maintain interest rates higher for longer to combat price hikes.
More indication of inflation reduction came earlier Wednesday, when the Consumer Price Index (CPI) climbed 3.3% over the previous year in May, slowing from April’s 3.4% annual increase in prices.
Powell has previously stated that, before cutting rates, the Fed will require more than a quarter’s worth of data to see whether inflation is continuously falling toward the central bank’s 2% target.
The probability of a first cut in September increased after the CPI reading Wednesday morning and remained at 58% following Powell’s remarks.
While the Fed’s decision to keep the fed funds rate unchanged was generally anticipated by financial markets, the outlook for rate changes later in the year was far more uncertain. Following the FOMC’s statement that only one rate decrease was anticipated, stocks fell. This was after they had spiked higher on Wednesday morning due to fresh data indicating price rises in May were less than anticipated.