US Federal Reserve signals two more 25 bps rate cuts by end of 2024

The US Federal Reserve indicated Wednesday that it plans to cut interest rates by an additional 50 basis points by the end of this year, according to projection materials released following its latest meeting.

The Fed on Wednesday lowered the federal funds rate by 50 basis points to a range of 4.75%-5.0%, starting its monetary easing in an aggressive way.

The median projection for the federal funds rate showed 4.4% for 2024, which means the central bank may lower interest rates two more times by 25 basis points each this year.

The median projection for the federal funds rate showed 3.4% for 2025, which indicates that the bank may lower interest rates four more times by 25 basis points each next year.

The bank also penciled in 50 basis points more of rate cuts for 2026, for which the federal funds rate projection is estimated at 2.9%.

The Fed's two-day meetings in the rest of 2024 will conclude on Nov. 7 and Dec. 18.

- Core PCE projection revised down

The central bank, in addition, slightly revised down its 2024 growth forecast for the American economy to 2% from 2.1% made in June.

The personal consumption expenditures (PCE) price index was also revised down to 2.3% from 2.6% for this year.

Core PCE inflation, the central bank's preferred inflation indicator, was revised down as well to 2.6% for 2024 from the 2.8% forecast made three months ago.

The unemployment rate, on the other hand, is estimated to average 4.4% this year, significantly up from the previous projection of 4% made in June.

- 'Dovish cut much needed'

Mark Zandi, a chief economist at Moody's Analytics, said the Fed's dovish 50 basis point rate cut "is much needed and all but cements an economic soft landing."

"Particularly dovish and encouraging is the Fed's aggressive projected rate cuts into 2026. If policymakers stick to script, by early next year, rates will be near my estimate of the short-term neutral rate of 4%," he wrote on X.

"Rates then decline to about 3% in the year that follows - my and the Fed's estimate of the long-run neutral rate," he added.

Zandi noted that the neutral rate is that rate consistent with monetary policy neither restraining nor supporting growth.

"This is also a jargony way of saying the Fed got policy right today," he said.