The Federal Reserve projects a single rate cut by 2026 amid economic uncertainty

I The Federal Reserve It left interest rates unchanged on Wednesday amid growing uncertainty over how the war in Iran will affect the economy and the central bank's approach to monetary policy, raising questions about whether any rate cuts will happen this year.

The Fed's monetary policy panel, known as the Federal Open Market Committee (FOMC), voted 11-1 to leave the benchmark federal funds rate unchanged in the 3.5% to 3.75% range. It was the second meeting in a row where tax rates were held steady after successive cuts supported by 25 basis points in September, October and December until the end of last year.

Policymakers released a summary of economic projections (SEP), which showed that the median projection for interest rates sees just one 25 basis point cut throughout the year followed by one cut of that size in 2027.

“In our SEP, FOMC participants have written down their individual assessment of the appropriate path for the federal funds rate under what each participant considers to be the most likely scenario for the economy,” Federal Reserve Chair. Jerome Powell said. “Participant projects mean that the appropriate level of the federal funds rate will be 3.4% at the end of this year and 3.1% at the end of next year, unchanged from December.”

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“As always, these individual predictions are subject to uncertainty and are not a committee plan or decision,” Powell added.

During a press conference after the announcement, Powell was asked what officials saw that led them to plan cuts despite higher inflation forecasts and unchanged forecasts. unemployment rate and economic growth.

The SEP showed policy makers predict that the personal consumption expenditure index (PCE) – i The Fed's preferred inflation gauge – will be 2.7% by the end of this year, above the central bank's target of 2%. That's up from 2.4% in the Fed's previous forecast in December.

Core PCE, which excludes variable measures of food and energyit was revised to 2.7% at the end of this year. The previous estimate was 2.5%.

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“There are 19 people, so 19 reasons, 19 presentations,” Powell said. “If you notice, the median didn't change, but there was actually a reasonable amount of movement toward fewer cuts for people, so four or five people went from two cuts to one cut.”

“Actually, the forecast is that we will be doing more progress on inflationnot as much as we expected, but some progress in inflation,” Powell said. “It should come as we start to see progress in wages going hand in hand with inflation. We should be seeing that.”

“And you know that the price forecast depends on the performance of the economy, so if we don't see that progress, you won't see the rate drop,” he explained.

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The market responded to the Fed's forecast by downgrading expectations around it reduction of interest rate this year, which was expected to start in early June.

The CME FedWatch tool showed an 89.2% chance that rates will remain at their current levels after the Fed's June meeting after today's announcement. That's up from 79.5% yesterday, 62.8% last week and 37.8% last month – while the tool now shows a 3.8% chance of a 25-point increase in June, up from zero last month.

The market now sees the possibility that the Fed will leave rates unchanged by the end of this year.

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The CME FedWatch tool shows a 51.3% chance that rates will be in their current range after the December Fed meeting – up from 23.5% last week and 4.9% last month.

December's odds show a 35.7% chance of a single 25-point cut during that period, while the odds of a second cut between now and then have dropped to 9.5% from 32.5% last month.