Federal Reserve officials signal one interest rate cut before end of 2024

Federal Reserve chair Jay Powell has overseen a historic campaign by the central bank to tame US inflation. Photo / Susan Walsh, AP, File

Federal Reserve officials have signalled that they intend to cut interest rates just once by the end of 2024, as the US central bank left borrowing costs on hold at a 23-year high of between 5.25 per cent and 5.5 per cent.

Updated forecasts on Wednesday (US time) showed the median rate-setter anticipated making one quarter-point cut this year.

Four members of the Federal Open Market Committee said they expected to make no cuts, while seven said they thought they would make one quarter-point cut. Eight of the 19 members backed two cuts.

The median projection for the benchmark federal funds rate was 5.1 per cent, implying just over one quarter-point cut.

The FOMC members acknowledged there had “been modest further progress” towards their 2 per cent inflation goal — a more confident assertion than at their last policy vote in May.

However, that progress has fallen short of giving rate-setters the answers they need to stick with plans to cut rates more aggressively over the course of 2024.

Officials’ predictions marked a change from March, when the average FOMC member expected three cuts this year — and suggested rate-setters remained concerned about inflation that has remained above the Fed’s 2 per cent target.

Stocks dipped and Treasury yields rose following the Fed’s announcement, reversing some of the market moves from earlier in the day, as traders pulled back bets on rate cuts this year.

Two interest rate cuts in 2024 were no longer fully priced in by the futures market, with the sole cut not priced in until November. Traders pulled back expectations of a cut in September.

Cooler-than-expected consumer price index data for May, released just hours before the Fed meeting concluded, had increased bets on a cut earlier in the autumn.

The Fed has held borrowing costs at their current level since last July in an effort to quell inflation that jumped to a multi-decade high in mid-2022.

Written by: Claire Jones in Washington and Kate Duguid in New York

© Financial Times