Federal Reserve officials maintained their outlook for three quarter-point rate cuts this year but forecast fewer cuts than before in 2025 following a recent uptick in inflation.
Officials decided unanimously to leave the benchmark federal funds rate in a range of 5.25% to 5.5%, the highest since 2001, for a fifth straight meeting. 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.
"If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year," Chair Jerome Powell said at a press conference Wednesday, repeating comments he made following the Fed's last rate decision in January.
The S&P 500 index of US stocks rose, while Treasury yields and the Bloomberg Dollar index fell. Traders boosted the probability that the Fed would begin rate cuts in June.
The Fed's post-meeting statement was nearly identical to January's, maintaining the guidance that rate cuts won't be appropriate until officials have more confidence inflation is moving sustainably toward their 2% target.
"The committee judges that the risks to achieving its employment and inflation goals are moving into better balance," the central bank's policy-making Federal Open Market Committee said.
The central bank also reiterated its intention to continue reducing its balance sheet by as much as $95 billion per month. Policymakers were scheduled to hold a discussion of balance sheet issues, and some, including Dallas Fed President Lorie Logan, have called for an eventual slowing of the pace at which the Fed is shrinking its portfolio of assets.
After raising the benchmark federal funds rate more than five percentage points starting in March 2022, Fed officials have emphasized they're in no rush to lower borrowing costs until they are certain inflation is contained.
"It is still likely in most people's view that we will achieve that confidence and there will be rate cuts," he said Wednesday, largely shrugging off recent data showing an uptick in inflation in recent months.
Market Expectations
Ahead of Wednesday's decision and press conference, traders saw a slightly better than 50-50 chance of the first cut coming in June, and expected a total of roughly three cuts this year.
