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U.S. Fed Signals Three Rate Cuts Are Coming In 2024

The U.S. Federal Reserve has signaled that it still plans to lower interest rates this year, news that has sent American equities sharply higher.

All three major stock indices in the U.S. rallied after the central bank reiterated that it still plans three quarter-percentage point interest rate cuts by the end of 2024.

The cuts would be the first reductions to interest rates since the outset of the Covid-19 pandemic in 2020.

News that the Fed is still planning to lower rates came after the central bank elected to keep its benchmark overnight interest rate at its current level of a 5.25%-5.50% range, the same level it has been at since July 2023.

Interest rates in the U.S. are currently at their highest level in 23 years.

The forecast of three rate cuts this year was taken from the Federal Reserve’s “dot plot,” a closely watched matrix of projections from the 19 officials who comprise the central bank’s rate-setting Federal Open Market Committee (FOMC).

Economists and traders had been revising down their expectations for interest rate cuts this year after economic data showed inflation in the U.S. was stronger than expected in January and February.

While the Federal Reserve gave no indication of the timing for interest rate cuts, Chair Jerome Powell said during a news conference that he still expects lower rates in coming months.

“We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” said Powell.

Futures markets are now pricing in a 75% chance that the first interest rate cut comes at the central bank’s June 12 meeting.

Markets rallied strongly following the central bank meeting. The blue-chip Dow Jones Industrial Average finished the session up 401 points, or just over 1%.

Treasury yields headed mostly lower, with the benchmark 10-year bond dipping to 4.28%, down 0.01 percentage points.

The Federal Reserve also raised its projections for economic growth in the U.S. this year and now sees gross domestic product (GDP) running at a 2.1% annualized rate, up from a 1.4% estimate previously.

The U.S. Federal Reserve next meets to decide on interest rates May 1.