Fed left interest rate unchanged at 5.25-5.50% as widely expected. The new economic projections and dot plots are clearly more hawkish than December’s. Yet, Dollar dips initially after the announcement, perhaps because they’re not as hawkish as feared.
In the new median economic projections interest rate is still seen at 4.625% by the end of 2024. But federal funds are are now projection to decline slower to 3.875% by the end of 2025 (vs prior 3.625%), and then 3.125% by the end of 2026 (vs prior 2.875%). The long run federal funds rate is seen slightly higher from 2.5% to 2.6%.
Looking at the details of the dot plot for end of 2024, nine members see interest rate above 4.75%, and 10 below that level. That is one member has shifted the stance (the split was 8-11 in December). Also, only one member expects interest rate to be below 4.50%. That is, Fed isn’t likely to cut more than three times this year, with higher risk of cutting less.
Other forecasts see:-
GDP growth:
- 2024 GDP growth at 2.1% (upgraded from 1.4%).
- 2025 GDP growth at 2.0% (upgraded from 1.8%).
- 2026 GDP growth at 2.0% (upgraded from 1.9%).
Headline PCE:
- 2024 PCE inflation at 2.4% (unchanged).
- 2025 PCE inflation at 2.2% (raised from 2.1%).
- 2026 PCE inflation at 2.0% (unchanged).
Core PCE:
- 2024 core PCE inflation at 2.6% (raised from 2.4).
- 2025 core PCE inflation at 2.2% (unchanged).
- 2026 core PCE inflation at 2.0% (unchanged).
