Fed raises GDP and inflation outlook, while keeping rate cut forecast


Federal Reserve Chairman Jerome Powell testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled “The Semiannual Monetary Policy Report to the Congress,” in Dirksen Building on Thursday, March 7, 2024.
Tom Williams | Cq-roll Call, Inc. | Getty Images

Federal Reserve members still see three interest rate cuts in 2024 despite an improving outlook for economic growth.

The Federal Open Market Committee’s March projections for rate cuts, or “dot plot,” shows a median Federal funds rate of 4.6% in 2024. With the current Fed funds rate in a range 5.25% to 5.50%, the dot plot implies three cuts of 0.25 percentage points.

Federal Reserve

The previous Summary of Economic Projections from December also showed three rate cuts in 2024.

However, the the projected change in real GDP for 2024 was 2.1% in the March projection, up from 1.4% in December. Core PCE inflation projections also ticked up to 2.6% from 2.4%.

“The FOMC’s SEP continues to show [0.75%] of rate cuts this year, even as the core-PCE estimate was increased by 0.2 pp to 2.6%. We’ll argue this is the most relevant takeaway from the SEP because it suggests the upside seen in realized inflation early this year is being dismissed by monetary policymakers,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

There were some smaller changes within the dot plot. In December, there was a bigger split among individual members, with two FOMC voters indicating zero cuts in 2024 and another seeing six cuts. The most aggressive prediction has been dialed back to just four cuts in the March projections.

Additionally, the median projection for the Fed funds rate in 2025 rose to 3.9% from 3.6%, implying one fewer cut.

The updated projections came after a recent series of inflation reports that have dampened the hopes that the Fed has price increases under control. Last week, February’s core reading for the consumer price index came in hotter than expected, up 3.8% year over year. Traders have been dialing back their expectations for rate cuts this year, according to the CME FedWatch tool.

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