Policymakers expect the Fed’s benchmark rate to fall another half-percentage point later this year, another full percentage point in 2025, and a final half-percentage point in 2026, ending in a range of 2.75%-3.00%.
The final point reflects a slight increase, from 2.8% to 2.9%, in the longer-term federal funds rate, considered the “neutral” stance that neither encourages nor discourages economic activity.
“This decision reflects our growing confidence that, with an appropriate review of our monetary policy, labor market strength can be maintained in a context of moderate growth and inflation moving sustainably toward 2%,” Fed Chairman Jerome Powell said at a press conference following the meeting.
U.S. stocks rose after the statement and updated quarterly economic projections, while the dollar .DXY fell against a basket of currencies. U.S. Treasury yields fell.
“The Fed ended the pause with a bang. It’s a strong signal that they cut 50 basis points and expect another 50 basis points of cuts this year. This was controversial,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Although inflation “remains somewhat high,” the statement from the Fed points out that the monetary authorities They opted to cut the overnight rate to a range of 4.75% to 5.00% “in light of developments in inflation and the balance of risks.”
The Fed “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the achievement of the Committee’s objectives,” with attention to “both sides of its dual mandate” of stable prices and maximum employment.
