U.S. Fed Holds Key Interest Rate, Signals Three Cuts In 2024

The U.S. Federal Reserve kept its key interest rate steady in line with expectations but signalled three cuts next year.

The Federal Open Market Committee decided to hold its key interest rate at 5.25-5.5% in December in a unanimous decision, according to its statement on Wednesday night. The central bank had hiked the rates by 25 basis points in July, which took the benchmark rate to its highest in 22 years. In September and November, it kept them unchanged.

The median rate forecast for 2024 fell to 4.6% compared with 5.1% in September, according to Fed's economic projections. That implies three rate cuts of 25 basis points each—more than earlier projected.

The yield on the 10-year Treasury dropped 12 basis points to 4.081% after the decision. The 2-year Treasury yield was last down more than 19 basis points to 4.535%.

The FOMC believes that the "policy rate is at or near peak for this cycle", Fed Chair Jerome Powell said in a post-announcement press conference. The Fed is prepared to tighten policy further if appropriate and the FOMC doesn't want to take further hikes off the table, he said.

He said the Fed "discussed the timing of rate cuts at today's meeting" and no one is declaring victory ... we are moving carefully". "So far, inflation is coming down without large job losses," he said, adding that the focus is still on how high to raise the policy rate.

According to the FOMC statement, growth of economic activity has slowed from its strong pace in the third quarter, job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. "Inflation has eased over the past year but remains elevated."

"The U.S. banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation," the Fed said. "The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks."

The committee will continue to assess additional information and its implications for monetary policy, it said. It is "strongly committed to returning inflation to its 2% objective".

The Consumer Price Index increased 0.1% in November on a seasonally adjusted basis after being unchanged in October, the U.S. Bureau of Labor Statistics reported just a day prior. On an annual basis, the index increased 3.1%.