Federal Reserve Expected to Keep Interest Rates Stable, Indicate Slight Decrease in 2024

© Reuters. FILE PHOTO: The Federal Reserve constructing is viewed in Washington, U.S., January 26, 2022. REUTERS/Joshua Roberts/File Photo

By Ann Saphir

WASHINGTON (Reuters) – The Federal Reserve holds interest charges unchanged for a third straight time, suggesting a pivot to monetary policy easing will neither approach soon nor be sharp, recognizing inflation’s bumpy development downward.

In quarterly economic projections to be launched at the end of a two-day meeting, U.S. central bankers are likely to pencil in at least a few payment cuts by the end of next year, as they seek to balance policy that is restrictive enough to slow spending and hiring, but not so tight that it sends them into a tailspin.

Fed Chair Jerome Powell is expected in a press conference to emphasize that any cuts in borrowing charges are contingent on further improvement on inflation, which despite a quick decline this year is still above the Fed’s 2% purpose.

The Fed chief is scheduled to speak at 2:30 p.m. EST (1930), half an hour after the policy statement and projections are released.

“Powell will have to walk a fine line by recognizing the progress made toward the normalization of the economy while pushing back on the idea of early payment cuts,” and may even warn that the Fed might raise rates again if needed, TD Securities analysts wrote as the Fed meeting got underway on Tuesday.

Indeed, the economy has normalized quite a bit. Inflation by the Fed’s preferred measure, the personal consumption expenditures price index, dropped to 3% in the most recent reading, from over 7% at its peak in the summer of 2022.

Meanwhile, the unemployment rate in November fell to 3.7%, barely above where it was when the Fed started raising interest charges from the near-zero level in March 2022.

Fed policymakers will give their views on where inflation, unemployment, and GDP are likely to be in the coming years as part of the updated projections.

A reminder of why Powell is likely to be cautious to signal the end of the Fed’s interest rate hiking campaign came on Tuesday after the Labor Department reported U.S. consumer prices unexpectedly rose and underlying inflation pushed higher in November.

On Wednesday, shortly before Fed policymakers convened for their final day of policy deliberations for the year, the central bank received a dose of good news as producer prices were unchanged on a month-over-month basis in November. Economists polled by Reuters had expected a 0.1% increase.

“The data confirm the downtrend in inflation even though consumer prices are moving lower more frequently,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

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Economists polled by Reuters expect the Fed to hold its benchmark overnight interest rate steady in the 5.25%-5.50% range until at least July.

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