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Business News/ Economy / US Fed keeps benchmark rates steady at 23-year high-mark, projects 3 rate cuts in 2024: 5 key highlights
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US Fed keeps benchmark rates steady at 23-year high-mark, projects 3 rate cuts in 2024: 5 key highlights

The US central bank has maintained its key overnight interest rate at the 23-year high mark since July, but has signaled three rate cuts in 2024, despite sticky inflation.

The US Fed maintained the target range for the federal funds rate at 5-1/4 to 5-1/2 per cent. (Reuters)Premium
The US Fed maintained the target range for the federal funds rate at 5-1/4 to 5-1/2 per cent. (Reuters)

The US Federal Reserve announced its second interest rate decision for 2024 today (March 20), after a two-day Federal Open Market Committee (FOMC) meeting, where it unanimously voted to leave the benchmark interest rates unchanged at 5.25 per cent - 5.50 per cent for the fifth straight meeting, in line with Street estimates. 

The US central bank has maintained its key overnight interest rate at the 23-year high mark since July, and also signaled three rate cuts in 2024, despite sticky inflation. Fed policymakers foresee fewer rate cuts in 2025, and also slightly raised the US core inflation and US GDP growth forecasts for 2024. 

‘’The Committee seeks to achieve maximum employment and inflation at the rate of two per cent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance,'' said the Fed in its statement. The economic outlook is uncertain, and the FOMC remains highly attentive to inflation risks, it added.

Follow US Fed Meet Live Updates: Powell-led FOMC keeps key rates unchanged at 5.25-5.50% for 5th straight meeting

US Fed Policy March 2024: Here are 5 key highlights


1.US interest rates at over 2 decade-high

The Fed kicked off an aggressive monetary policy tightening cycle by raising the policy rate by 5.25 percentage points since March 2022 – in one of the swiftest Fed reactions to rising price pressures that had eventually hit a 40-year peak.

However, the central bank has it has kept its policy rate in the current range since last July 2023. The Fed’s rate hikes have helped lower annual inflation from a peak of 9.1 per cent in June 2022 to 3.2 per cent. However, they have also made borrowing much costlier for businesses and households.

Today's policy statement also repeated that officials are still seeking "greater confidence" in a continued decline of inflation before they begin cutting interest rates, language adopted at the Fed's January 30-31 meeting that is likely to stay in place until just before the first rate reduction. 

2.Fed projects 3 rate cuts in 2024, fewer in 2025

FOMC members also left the median projection for interest rates at end-2024 at the midpoint between 4.50 and 4.75. This means they still expect 0.75 percentage points of cuts before the end of the year, which would likely translate into three 0.25 percentage point cuts.

Even though policymakers signaled they remain on track to cut rates this year for the first time since March 2020, but they now see just three reductions in 2025, down from four forecast in December, based on the median projection.

Also Read: US Fed leaves key rates unchanged: Full text from Fed's monetary policy statement

This comes as the latest projections show the median policymaker expects the overnight interest rate to fall three-quarters of a percentage point in 2025 and by three-quarters of a point in 2026 as well, the same as anticipated previously.

One key measure, the longer-run policy rate, was moved higher by a tenth of a percentage point, from 2.5 per cent to 2.6 per cent, reflecting the views of some Fed officials that the economy can support higher interest rates overall in the future.

3.Fed raises US GDP growth forecasts, core inflation for 2024

Alongside its rate decision, Fed policymakers also updated their economic forecasts, sharply upgrading the US growth outlook for this year to 2.1 per cent, from 1.4 per cent in December. 

Policymakers left the headline inflation forecast unchanged, but slightly raised the outlook for annual ‘core’ inflation -- which excludes energy and food prices -- to 2.6 per cent, compared to 2.4 per cent in the projections issued in December. They also lowered their unemployment rate projection slightly, to four per cent from 4.1 per cent, for 2024.

"Economic activity has been expanding at a solid pace. Job gains have remained strong and the unemployment rate has remained low," the Fed said in its unanimously approved statement after the end of the two-day meeting.

4.Fed to reduce its balance sheet by $95 billion per month

Fed chair Jerome Powell said that that the central bank expects "fairly soon" to start slowing down the pace at which it is selling off assets it acquired to help the economy weather the Covid-19 pandemic.

Such a move would reduce the chances of another liquidity crisis, and could actually allow the Fed to do more over the longer term to reduce its swollen balance sheet, said Powell while addressing the central bank's ongoing efforts to reduce the size of its holdings, commonly referred to as quantitative tightening, or QT.


5.S&P 500 tops historic 5,200 mark, Yields fall on Fed rate cuts

Stocks rose and bond yields fell as the US Federal Reserve kept its forecast for three rate cuts in 2024, with Jerome Powell saying that it will be appropriate to start easing 'at some point this year.' 

The market was relieved after the decision as the S&P 500 topped the 5,200-mark for the first time, while the tech-heavy Nasdaq 100 rose about one per cent.  Two-year yields declined seven basis points to 4.6 per cent, while the yield on 10-year Treasuries declined two basis points to 4.28 per cent after the Fed verdict.

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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 21 Mar 2024, 12:30 AM IST
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