Commentary on Political Economy

Wednesday 20 March 2024



Fed Officials Still See Three Interest-Rate Cuts This Year

Updated March 20, 2024 3:38 pm ET

‘We continue to make good progress on bringing inflation down,’ Fed Chair Jerome Powell said at Wednesday’s news conference. Photo: shawn thew/Shutterstock

Federal Reserve officials didn’t significantly change their outlook for delivering interest-rate cuts later this year despite solid growth and firmer-than-anticipated inflation in recent months.

Most officials penciled in three rate cuts this year in new projections, the same as in December. The central bank held steady its benchmark federal-funds rate in a range between 5.25% and 5.5%, a 23-year high.

Federal Reserve Chair Jerome Powell said the central bank would hold interest rates steady for now, while signaling rate cuts could be warranted later this year. Photo: Chip Somodevilla/Getty Images

The economic projections released Wednesday were the subject of intense focus on Wall Street because investors crave more information about how inflation readings for January and February influenced the Fed’s outlook. Stronger price pressures this year interrupted a streak of cooler reports in the second half of last year, raising questions over whether inflation will return to the Fed’s 2% target as quickly as officials and investors have anticipated.

Fed Chair Jerome Powell conceded that inflation had been stickier than anticipated over the last two months and cautioned that policymakers shouldn’t be “dismissing data that we don’t like.”

But he said officials had expected the inflation decline might be “bumpy” and it was too soon to say the recent trajectory of lower inflation had stalled or reversed. 


“We don’t really know if this is a bump on the road or something more. We’ll have to find out,” he said. “Here are some bumps. Are they more than bumps?”

Stocks shot up after the Fed announcement, and the S&P 500 hit an intraday record.

Ahead of the release of those projections and the Fed’s policy statement, investors anticipated the Fed would cut rates three times this year, with better than even odds that the first move would occur by June. The Fed meets one more time before that, on April 30-May 1.

Fed officials also expect inflation, excluding volatile food and energy prices, to end the year at a modestly higher level than they expected in December—at 2.6% instead of 2.4%. Those prices rose 2.8% in January.

Officials marked up their growth outlook for 2024, with most expecting gross domestic product to expand by 2.1%. In December, they expected growth to advance 1.4% this year.


Still, the projections showed some officials expect fewer cuts this year than they did in December. They penciled in a modestly slower pace of rate reductions next year, with their benchmark rate settling out just below 4% at the end of 2025 and slightly above 3% after that.

The fed-funds rate influences other borrowing costs throughout the economy, such as on mortgages, credit cards and business loans. The 30-year fixed-rate mortgage stood at roughly 6.7% last week, down from an October high of 7.8%, according to Freddie Mac.

The Fed began raising rates from near zero two years ago and lifted them at the fastest pace in 40 years to combat inflation that also soared to a four-decade high. Officials increased rates most recently in July.

At that time, many economists and some inside the Fed anticipated that the central bank’s rate increases to bring inflation down would lead to higher unemployment and a recession. But economic growth has shown surprising resilience even as wage and price increases have slowed thanks to healed supply chains and an influx of workers into the labor force.


Using the Fed’s preferred gauge, inflation excluding volatile food and energy prices has fallen to around 2.8% recently, down from 4.8% one year ago.

Since officials last met in January, economic data has done little to resolve a debate over whether the Fed should pre-emptively take back any of the increases it made last year, when many worried inflation might settle above 3%.

The inflation setback in January and February reversed a recent sharp slowdown and underscored the cautious stance many Fed officials adopted at their January meeting around cutting rates. It has likely emboldened those who think reductions won’t be warranted this year unless the economy slows sharply.

Higher housing prices and a stock market up nearly 20% since November are boosting wealth and thus supporting consumption, especially of high-income households. The price of bitcoin has recently surged to records, a sign of exuberant risk-taking.



What are your biggest takeaways from the Fed meeting? Join the conversation below.

Other reports, however, suggest consumer spending has cooled, and hiring surveys have been mixed. The most widely watched measure of employment growth has been solid, but earlier reports have been revised down by historically large margins. Wage growth has continued to slow and unemployment has steadily inched up, from 3.4% last April to 3.9% in February.

Those readings could provide fodder to Fed officials who are concerned about leaving rates at their current level for too long.

The stakes are high for Fed officials, who are trying to navigate two risks. One is that they ease too soon, allowing inflation to become entrenched at a level above their 2% target. The other is that they move too slowly and the economy crumples under the weight of higher rates.


Democrats are nervous that higher rates are sapping consumer sentiment and risking a slowdown ahead of November’s elections. This week, a handful of the most liberal lawmakers called on Powell to cut rates. Fed officials say they don’t weigh political considerations when deciding interest-rate policy.

President Biden earlier this month said he was hopeful the Fed would be able to follow through on its projections of lower rates. “I can’t guarantee it, but I’ll bet you those rates come down more, because I bet you that little outfit that sets interest rates is going to [bring them] down,” he said at a campaign rally.

Write to Nick Timiraos at

Inflation and the Economy

Analysis from The Wall Street Journal, selected by the editors

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