The Federal Reserve on Wednesday left its benchmark interest rate unchanged and penciled in only one rate cut in 2024 as policymakers await more evidence that U.S. inflation is cooling in earnest.
The central bank kept the federal funds rate — or what banks charge each other for short-term loans — in a range of 5.25% to 5.5%. It has remained at that level, the highest in 23 years, since July of 2023.
The Fed has been wary of cutting rates due to stubborn inflation, which is showing some signs of easing yet remains above the central bank’s 2% annual target. Earlier on Wednesday, the government said consumer prices in May rose 3.3% on an annual basis, showing some easing from April, when the pace stood a tick higher at 3.4%.
In its statement, the Fed said there has been some “modest” progress of late in lowering inflation closer to its target, but added that the pace of price increases “remains elevated.” Inflation-weary consumers will likely have to bear higher borrowing costs throughout 2024, with the Fed adding that it’s penciling in just one rate cut this year, down from the three reductions it had earlier forecast.
The Fed’s rate policies affect the costs of mortgages, auto loans, credit card rates and other forms of consumer and business borrowing. The downgrade in their outlook for rate cuts would mean that such borrowing costs would likely stay higher for longer.
“The fact that the Fed scaled back the number of rate cuts from three to one is going to disappoint those who were hoping for a summer rate drop,” said Bright MLS chief economist Lisa Sturtevant in an email. “Mortgage rates, which have remained higher for longer, will likely remain in the high sixes until later this year.”
In recent months, Fed Chair Jerome Powell has stated that the central bank prefers keeping rates elevated until inflation falls closer to its 2% annual target because of the risk that cutting too soon could fuel another round of price spikes.
Still, the Fed’s quarterly projections of future interest rate cuts are by no means fixed in time. Policymakers frequently revise their plans for rate cuts or hikes depending on how economic growth and inflation measures evolve over time.