Fed projects higher inflation, just one rate cut for 2024

The Federal Reserve is projecting one interest rate cut of a quarter of a percent this year, down from three quarter-point cuts as predicted in March, according to the central bank’s latest summary of economic projections.

The Fed’s expected annual inflation rate for 2024 rose to 2.6 percent from 2.4 percent as core inflation — which removes the less volatile categories of energy and food — was also adjusted upwards from 2.6 percent to 2.8 percent as measured by the Commerce Department’s personal consumption expenditures (PCE) price index.

The Fed expects annual inflation to drop to 2.3 percent next year and to 2 percent in 2026.

The forecast for the unemployment rate remained unchanged from March at 4 percent, which is where it stands after a slight uptick in May.

Expectations for growth in gross domestic product (GDP) growth also held steady at 2.1 percent for the year.

Hopes had been high among investors for additional rate cuts this year, which would lower the cost of borrowing money and tend to fuel the stock market.

However, a string of surprisingly strong jobs reports along with some elevated price readings earlier in the year dampened those hopes.

The economy added 272,000 jobs in May, blowing past expectations around 190,000, while the unemployment rate inched upward to 4 percent from 3.9 percent.

Inflation also ticked higher in March to 3.4 percent, though it has been coming down again in April and May. Wednesday’s consumer price index (CPI) reading came in at a 3.3 percent annual increase as grocery prices dipped for the fourth consecutive month.

The Fed held interest rates steady on Wednesday at a range of 5.25 percent to 5.5 percent.

The Fed’s rate-setting committee said that “the risks to achieving its employment and inflation goals have moved toward better balance over the past year,” though it described recent progress as “modest.”

Inflation in the housing sector, which lags other markets, is still significantly elevated at 5.4 percent. Purchases and sales of homes have been muted in recent months as a result.