By Yasin Ebrahim
Investing.com -- The Federal Reserve kept rates steady on Wednesday, but continued to signal for one more rate hike this year and fewer rate cuts next year even as Fed members projected a faster easing in the pace of inflation.
Fed holds rates steady, but rate hike #12 remains in play for 2023
The Federal Open Market Committee, the FOMC, kept its benchmark rate in a range of 5.25% to 5.5%. The Fed’s decision to hold rates steady followed recent evidence that its 11 rate-hikes delivered so far are starting to turn the tide in the battle against inflation.
The core personal consumption expenditures price index, or core PCE, which is closely watched by the Fed as a more accurate measure of underlying price pressures, slowed to 4.3% from 4.7% in the 12 months ending in August. That was the slowest pace since September 2021.
Still, a twelfth rate hike remains on the table as FOMC maintained their forecast for rates to peak at 5.5% to 5.75% this year, or 5.6% at the midpoint, according the Summary of Economic projections that accompanied the monetary policy statement.
Fed commits to higher for longer rate regime with fewer cuts expected in 2024
In a sign that the Fed is committed to its higher-for-longer rate regime, Fed members now see the benchmark rate at 5.1% next year, suggesting just two rate cuts in 2024, compared with four rate cuts projected previously.
For 2025, interest rates are expected to drop to 3.9%, above the 3.4% previously projected, and fall further to 2.9% in 2026.
No rush to declare victory on inflation just yet
But with inflation still running above the Fed’s 2% target, and ongoing strength in the economy that threatens to rejuvenate inflation, committee members endorsed recent positive inflation data, but aren’t in a rush to declare victory on inflation just yet.
The Fed now expects the core PCE index to average 3.7% this year, down from a prior forecast of 3.9% seen in June. For 2024, inflation is estimated to slow to 2.6%, unchanged from the prior forecast, and fall further to 2.3% by 2025, slighter higher than the prior projections of 2.2%, before eventually slipping to the 2% target in 2026.
All eyes on Powell
In his Jackson Hole appearance last month, Federal Reserve Chairman Jerome Powell welcomed signs of easing inflation, but said the Fed intends to keep rates at a restrictive level until it was "confident that inflation is moving sustainably down toward [the Fed’s 2%] objective.”
Traders are expected to shift attention to Powell’s press conference at 14:30 PM ET (18:30 GMT) for Powell’s insight on the path of inflation, the labor market, and monetary policy.