- Interest rates remain at their current level, between 5.25 and 5.5%
- With inflation easing, policymakers have planned three interest rate cuts next year
- Shares soared after the announcement as investors embraced the forecast
The Federal Reserve today kept interest rates stable for the third time in a row, but indicated that several cuts are on the way in 2024.
The central bank voted unanimously to keep borrowing costs at their current 22-year high of between 5.25 and 5.5 percent.
But with inflation cooling, most policymakers have planned three rate cuts by 2024, in projections released after their two-day meeting.
Officials predict this will push rates to around 4.6 percent by the end of next year – the equivalent of a three-quarter point cut.
Following the announcement, the Dow Jones Industrial Average rose more than 400 points (or 1 percent) to a record high as investors embraced the Fed's forecast.
The Federal Reserve kept interest rates stable for the third time in a row today, but indicated that multiple cuts are on the way in 2024
The Fed's relentless campaign to raise rates has pushed borrowing costs from an all-time low of 0.5 percent in April 2020 to 5.5 percent today.
The move was aimed at curbing rampant inflation, which slowed to an annual rate of 3.1 percent in November.
There were only three changes to the wording of the Fed's statement this month compared to last month, and they involved only removing or adding a few words. But the changes are crucial to get a clear picture of the central bank's stance.
All three changes indicated that the Fed believed the economy was slowing or inflation was declining — which is good news for those who want rate cuts.
The accompanying statement said policymakers would take several factors into account as they tighten policy “even further” to reduce inflation to their 2 percent target – a word that had not previously appeared.
Markets had expected the decision to keep rates unchanged, but there was widespread uncertainty and anticipation about what the central bank might announce regarding next year.
At a press conference after the announcement, Fed Chairman Jerome Powell said that if the economy develops as expected, policymakers predict they will cut interest rates to about 4.6 percent by the end of 2024, 3.6 percent by the end of 2025 and 2.9 percent by the end of 2024. by the end of 2026.
However, he noted that these numbers were not a Fed plan and that policy would be adjusted depending on what happens to the economy in the coming years.
Fed Chairman Jerome Powell spoke at a news conference after the announcement
Powell called the latest consumer price index data “welcome,” but was careful to add that the battle against inflation is not over.
The annual inflation rate cooled to 3.1 percent in November, down slightly from 3.2 percent in October.
“The lower inflation figures in recent months are welcome, but we will need further evidence to build confidence that inflation is moving sustainably towards our target,” he said.
“While we believe our policy rate is likely to be at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic and continued progress toward our 2 percent inflation target is uncertain.
“We are prepared to further tighten the policy if necessary,” he added.
While the Fed indicated it could cut borrowing costs by three-quarters of a percentage point by 2024, Wall Street investors predicted it could be double that.
Traders in the Fed Funds futures market had priced in a 1.5 percentage point cut for the coming year, according to CME Group's FedWatch indicator.
That would lower the interest rate for the benchmark funds to 3.75 percent to 4 percent.
This is a breaking news story. More updates will follow.