The Federal Reserve left interest rates unchanged in January.
The Federal Open Market Committee (FOMC) agreed to maintain the target range for the federal funds rate at 5.25% to 5.50%, marking the fourth policy meeting where the Fed’s benchmark interest rate was left unchanged.
The FOMC last approved a 0.25-percentage-point increase during the policy meeting in July 2023. Since then, the committee has left rates unchanged for all subsequent meetings in September, October/November, December, and January.
While FOMC participants acknowledged the downtrend in inflation over the past six months, the committee said it has not gained enough confidence to be sure inflation is moving sustainably toward the Fed’s 2% goal.
“This certainly suggests that the FOMC does not plan to cut the federal funds rate at its next meeting, on March 19 and 20,” wrote PNC Chief Economist Gus Faucher. “That said, today’s statement is the first time during the current monetary policy cycle where the FOMC has discussed the potential for rate cuts.”
Unlike the previous policy statement in December, which had language indicating a tightening bias, the FOMC’s latest statement signifies that the committee is now adopting an easing bias.
During his scheduled press conference, Federal Reserve Chair Jerome Powell suggested the FOMC was nearing a point where it could start considering some policy easing but emphasized that participants were unlikely to reach rate-cut levels of confidence by the March meeting.
“We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell told reporters.
Despite the uncertain economic outlook, Powell said the FOMC remains “highly attentive to inflation risks” and is “prepared to maintain the current target range for the federal funds rate for longer, if appropriate.”
According to Faucher, PNC’s baseline forecast is that the FOMC cut rates by 25 basis points at the policy meeting on May 1. After the first rate cut, PNC expects the FOMC to cut three more times in 2024, each time by 25 basis points.
By the end of the year, PNC expects the federal funds rate to be in the 4.25% to 4.50% range, which falls mostly in line with forecasts from the Fed’s latest Dot Plot or Summary of Economic Projections. The median FOMC participant forecasts a 4.40% to 4.90% fed funds rate by the end of 2024.
