The Federal Reserve on Wednesday maintained its key policy rate for the third straight meeting, but surprised the market with an announcement of rate cuts in 2024.
Interest rates for the U.S. remained unchanged at a 22-year high of 5.25-5.50%, saying that economic growth has slowed since 3Q23. The Fed’s dot plot also showed that most officials see rate cuts in 2024 with a median projection of three.
The Fed mentioning of rate cuts came at a surprise to the market that expected the central bank to remain muted on future moves. Still, the Fed’s projection for rate cuts is still below market expectations by half.
The market expected to see about five rate cuts next year, and could be as much as six. The first cut could be as soon as March with a 70% chance, much higher than 30-50% prior to the meeting. There is also about a 20% chance that the Fed could cut interest rate by 25 basis points next month, according to CME FedWatch Tool.
In addition, the Fed stated that it sees 4.1% unemployment by the end of 2024, while the U.S. economy is expected to grow 2.6% this year and 1.4% in 2024.
