The US Federal Reserve has indicated that it expects to deliver three interest rate cuts later this year in a survey of its policymakers.
That’s the same number as they had pencilled in three months earlier, and expectations for the relief that such cuts would provide are a big reason U.S. stock prices have set records.
The fear on Wall Street was that the Fed may trim the number of forecasted cuts because of a string of recent reports that showed inflation remaining hotter than expected. The Fed has been keeping its main interest rate at its highest level since 2001 to grind down inflation. High rates slow the overall economy by making borrowing more expensive and dampening investment returns.
Fed Chair Jerome Powell said he noticed the last two months’ worse-than-expected reports, but they “haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road towards two percent. That story hasn’t changed.”
Mr Powell said again that the Fed’s next move is likely to be a cut sometime this year, but that it needs more confirmation inflation is moving toward its target of two percent.
The Fed has dangerously little room for error. Cutting rates too early risks allowing inflation to reaccelerate, but cutting too late could lead to widespread job losses and a recession.
“I don’t think we really know whether this is a bump on the road or something more; we’ll have to find out,” Mr Powell said about January and February’s inflation data.
“In the meantime, the economy is strong, the labour market is strong, inflation has come way down, and that gives us the ability to approach this question carefully.”
Fed officials upgraded their forecasts for the U.S. economy’s growth this year, while also indicating they may keep the benchmark rate higher in 2025 and 2026 than earlier thought.
