WASHINGTON — Federal Reserve officials signaled Wednesday that they still expect to cut their key interest rate three times in 2024, fueling a rally on Wall Street, despite signs that inflation remained elevated at the start of the year.
In new quarterly projections they issued, the policymakers forecast that stronger growth and inflation above their 2% target level would persist into next year. Overall, the forecasts suggest that the Fed still expects an unusual combination: A healthy job market and economy in tandem with inflation that continues to cool — just more gradually than they had predicted three months ago.
Rate cuts would, over time, lead to lower costs for home and auto loans, credit card borrowing and business loans. They might also aid President Joe Biden’s re-election bid, which is facing widespread public unhappiness over higher prices and could benefit from an economic jolt stemming from lower borrowing rates.
One reason may be that they expect “core” inflation, which excludes volatile food and energy costs, to still be 2.6% by the end of 2024, up from their previous projection of 2.4%. In January, core inflation was 2.8%, according to the Fed's preferred measure. While the Fed’s rate hikes typically make borrowing more expensive for homes, cars, appliances and other costly goods, they have much less effect on services spending, which doesn’t usually involve loans. With the economy still healthy, there is no compelling reason for the Fed to cut rates until it feels inflation is sustainably under control.
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