The central bank has always predicted higher interest rates for longer, but now it predicts even higher inflation.
For all that investors flipped, flopped, and flipped again in the past six months of speculation over future interest rates, thehas remained remarkably consistent. In a total confirmation of its previous projection from the end of 2023, the first summary of economic projections from the central bank in 2024 likewise predicts just three cuts to the federal funds rate this year, with the Fed holding rates at the 23-year high of the 5.25% to 5.5% range.
In December, the Fed predicted that median core PCE inflation for 2024 would fall to 2.4%, just shy of its 2% goal. But now, it predicts a 2024 median of 2.6%. And whereas it considers its lowrate projection even more broadly balanced than it did in December, the Fed now sees upside risks to inflation projections. While the Fed remains committed to approaching its 2% median inflation target in the next two years, not one member contributing to March’s SEP believes inflation will do so this year.
Slowly but surely, Treasury’s futures have adjusted to understand that the likely best-case scenario is the Fed delivers its three rate cuts this year, and that’s only if the data begin to reverse the trend and improve. Should inflation continue to go in the wrong direction, the Fed could be forced into itsand steer off course to raise interest rates in an election year. But the real kicker is not in the short run but in the long.
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