© Reuters
By Yasin Ebrahim
Investing.com — The Federal Reserve kept rates steady on Wednesday for the third-straight meeting, and signaled that its rate-hike cycle had ended, with further rate cuts now forecast for next year as inflation is expected to return to target earlier than expected.
The Federal Open Market Committee, the FOMC, kept its in a range of 5.25% to 5.5%.
The Fed removed its forecast for additional hike this year, projecting that rates have now peaked at 5.4%, and tacked on further rate cuts for next year.
Fed members estimated that the benchmark rate will fall to 4.6% next year, suggesting four rate cuts in 2024, from a prior projections of 5.1%, or two rate cuts.
The decision to keep rates steady for a third consecutive meeting comes against the backdrop of economic data that has strengthen expectations that a soft landing is within the sight.
The most recent measure of , which excludes out food and fuel costs and is considered a better gauge of underlying inflation, showed a slowing in the pace of inflation in the 12 months through November to 3.5% in November from 3.7% a month earlier.
While that is still above the Fed’s 2% target, the ongoing trend of disinflation has raised optimism that the Fed’s restrictive monetary policy measures, which the central bank believes haven’t fully filtered through the economy yet, will deliver the final blow to bring inflation back to target.
The strength in the labor market, however, has continued to muddy the Fed’s inflation fight, particularly in sticky services sector, in which wages make up the bulk of price pressures.
But the optimism from markets that the last mile of inflation is within reach sooner rather than later has lifted expectations for more rate cuts next year, pushing Treasury yields sharply lower and easing financial conditions.
Powell’s press conference at 14:30 PM ET (19:30 GMT) will likely dominate investor attention for further insight into the Fed’s latest projections including the interest-rate path ahead at time when are betting on at least four cuts next year.
On Dec. 1, Powell attempted to pushback against rate expectations, saying it would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease.”