Central bank officials see higher for longer rates in 2025 and 2026.
The Federal Reserve kept interest rates unchanged at the March Federal Open Market Committee (FOMC) policy meeting on March 20, but officials signaled that three rate cuts were still planned for this year.
Monetary authorities kept the benchmark Fed funds rate at a range of 5.25 percent and 5.5 percent, the highest level in 23 years.
According to the FOMC statement, economic activity remains expanding at a solid pace, the U.S. labor market remains strong, and the unemployment rate continues to be low.
Although inflation is still elevated, it has eased over the past year, the Fed said in its post-meeting statement.
Officials maintained the same language from the January meeting that it is inappropriate to lower interest rates until the Fed “has gained greater confidence that inflation is moving sustainably toward 2 percent.”
“In assessing the appropriate stance of monetary policy, the committee will continue to monitor the implications of incoming information for the economic outlook,” the FOMC statement reads.
“The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee’s goals.”
A Look at SEP
The rate-setting committee revealed the updated Summary of Economic Projections (SEP), reiterating that Fed officials still expect three rate cuts this year, effectively lowering the median policy rate to 4.6 percent.
However, the SEP data show that median policy rate expectations were adjusted higher.
In 2025, the median Fed funds rate will be 3.9 percent, up from the December 2023 projection of 3.6 percent.
The 2026 median rate will be 3.1 percent, up from the 2.9 percent estimate. The longer-run policy rate will be 2.6 percent, slightly higher than the December 2023 forecast of 2.5 percent.
“On the dot plot, there has been an upward shift in interest rate projections since December,” said Greg McBride, chief financial analyst at Bankrate.
“There are 9 participants that see no more than two rate cuts this year, including 2 that see none, while there are 9 participants that still see 3 rate cuts by year end. Only one participant sees 4 rate cuts in 2024.”
By Andrew Moran
