Dive Brief:

• The Federal Reserve, noting that inflation “remains elevated,” held the main interest rate Wednesday at a 22-year high while signaling deeper cuts to borrowing costs next year than it forecast three months ago.
• The central bank will likely trim the federal funds rate by the end of 2024 to 4.6% from the current range between 5.25% and 5.5%, according to a median projection by Fed officials. In September, Fed officials estimated that they would reduce the main rate to 5.1% by the end of next year. Fed Chair Jerome Powell said as recently as Dec. 1 that it was too early to conclude policy was tight enough to warrant a rate reduction.
• The Fed’s preferred inflation gauge – the core personal consumption expenditures price index – will probably fall by the end of 2024 to 2.4% from a 3.5% annual rate in October, according to Fed officials’ median projection. They forecast that unemployment will likely rise to 4.1% at the end of next year from 3.7% in November.

Dive Insight:

Fed officials believe more rate hikes will probably not be needed in coming months but want to retain the option of further tightening in case inflation stops falling toward their 2% target, Powell said after a two-day meeting of the Federal Open Market Committee.

“The lower inflation readings over the past several months are welcome but we will need to see further evidence to build confidence that inflation is moving down sustainably toward our goal,” he said at a press conference.

“Inflation is still too high, ongoing progress and bringing it down is not assured and the path forward is uncertain,” Powell said. “While [FOMC] participants do not view it as likely to be appropriate to raise interest rates further, neither do they want to take the possibility off the table.”

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