The Federal Reserve (U.S. central bank) kept interest rates unchanged on Wednesday, but hardened its stance on monetary tightening, as another rate hike is expected by the end of the year, with tighter monetary policy anticipated into 2024 beyond previous expectations. As they did in June, policymakers at the central bank expect, on average, that the benchmark overnight interest rate will peak this year in a range between 5.50% and 5.75%, which is a quarter percentage point above the current range.
However, the updated quarterly forecasts from the central bank indicate a decrease in interest rates of only half a percentage point in 2024, compared to a full percentage point drop anticipated during the central bank's meeting in June. The central bank's primary inflation measure is expected to decline to 3.3% by the end of this year, 2.5% next year, and 2.2% by the end of 2025.
The Federal Open Market Committee, which sets interest rates, noted in a statement that "inflation remains elevated." The statement included forecasts that suggest stronger economic growth and job growth than previously expected, while still considering the possibility of a "soft landing" for the economy.
Federal Reserve Chair Jerome Powell commented on this decision, warning that the new central bank forecasts, which show monetary tightening enduring longer, should not be considered a plan of action. After the Federal Open Market Committee meeting that maintained interest rates steady while anticipating another increase later in the year, he indicated that there is a good chance the strong interest rate hikes would not push the U.S. economy into recession, despite factors beyond the control of the central bank.
Powell asserted that his forecasts still stand but cautioned that other factors might influence the central bank's outlook. Regarding the new interest rate forecasts, he stated, "I do not want to characterize it as a plan," but rather, the forecasts reflect the officials' belief that economic performance will be better than they expected a few months ago. Powell added that officials will continue holding "meeting after meeting" regarding interest rates and are "prepared to raise rates further if appropriate."
