Fed sees slower-than-expected rate cuts in 2025, 2026

The US Federal Reserve economic vision issued after its meeting that ended on March 20 showed that the central bank members expected much higher growth in gross domestic product (GDP). They also indicating a slower pace of interest rate reduction than previous expectations.

The quarterly report showed that members of the Federal Open Market Committee (FOMC) expected a growth of 2.1% in real GDP during the current year, after December 2023 forecast of 1.4%. They also expected it to decline to 2% by the end of 2025 and 2026 (1.8% and 1.9% previously).

Regarding the monetary policy, members of the Central Bank confirmed their previous expectations for the average interest rate at 4.6% at the end of 2024, while they raised their expectations for borrowing costs to end in 2025 and 2026 at 3.9% and 3.1% respectively (3.6% and 2.9% previously).

Meanwhile, the 19 policymakers, whether voting or not, expected the unemployment rate to be 4% at the end of 2024, down from 4.1% previously, while their expectations at the end of 2025 remained unchanged at 4.1%.

Estimates also showed that the personal consumption expenditures (PCE) price index recorded 2.4% during the fourth quarter of this year on an annual basis, unchanged from December estimates, while they raised their expectations at the end of 2025 to 2.2% from 2.1% previously.

Policymakers expect the core PCE price index, which excludes the prices of unstable materials such as food and energy, to accelerate to 2.6% on an annual basis by the fourth quarter of this year, from December’s projections of 2.4%, with expectations that it will continue to decline to 2% in 2026.