At their final meeting of 2023 last month, members of the Federal Open Market Committee signaled that they thought the central bank’s campaign of interest rate increases had likely come to an end, according to meeting notes released Wednesday.
The Fed raised its key interest rate to a range between 5.25% and 5.5% in July as part of its effort to bring inflation in the U.S. economy under control. Inflation has eased significantly since hitting a peak of 9.1% on a 12-month basis in June 2022, with many economists crediting the Fed’s monetary tightening campaign for much of the improvement.
As for what comes next, Fed officials provided little sense of when they might start to cut rates. “Participants generally stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions and reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee’s objective” of 2%, the notes said.
At the same time, officials noted that additional rate hikes could not be ruled out entirely. “It was possible that the economy could evolve in a manner that would make further increases in the target rate appropriate,” the notes said. “Several also observed that circumstances might warrant keeping the target range at its current value for longer than they currently anticipated.”
Still, absent any unforeseen developments, the committee said that “clear progress” in the battle against inflation suggests that it will cut interest rates at some point this year. Economic projections from various committee members indicate they believe that “a lower target range for the federal funds rate would be appropriate by the end of 2024.”
The bottom line: Unless inflation flares up again, interest rates are probably headed lower in 2024.
