The Federal Reserve yesterday held interest rates steady for the third straight policy meeting, signaling that inflation has improved more quickly than expected. This opens the door to possible rate cuts in the coming year. Job gains have moderated since earlier in the year but are still considered strong, and unemployment rate is low.
“The U.S. banking system is sound and resilient,” the Fed said in a statement. “Tighter financial and credit conditions for households are likely to weigh on economic activity, hiring and inflation. The extent of these effects remains uncertain. The committee remains highly attentive to inflation risks.”
Officials hope to see maximum employment and inflation at 2%. To support these goals, the Fed chose to maintain the target range for the Federal Funds Rate at 5.25% to 5.5%. Officials will continue reducing holdings of U.S. Treasury securities, agency debt and mortgage-backed securities, and remains committed to returning inflation to 2%.
The Wall Street Journal reported that most Federal Reserve officials have penciled in three interest rate cuts for 2024. They expect core prices to rise 3.2% this quarter from a year ago, down from the September projection of 3.7%. Core inflation is expected to be at 2.4% at the end of next year, which is down from the September expectations of 2.6%.
Investors in interest-rate futures markets have speculated that the Fed could start cutting rates next spring and lower the Federal Funds Rate by at least 1 percentage point by the end of next year.
Markets responded positively yesterday, with the Dow Jones Industrial Average posting its highest mark ever, at 37,090.
