By Yasin Ebrahim
Investing.com -- The Federal Reserve kept rates steady on Wednesday for the third-straight meeting, and signaled that its rate-hike cycle had ended, with further rate cuts now forecast for next year as inflation is expected to return to target earlier than expected.
The Federal Open Market Committee, the FOMC, kept its benchmark rate in a range of 5.25% to 5.5%.
The Fed removed its forecast for additional hike this year, projecting that rates have now peaked at 5.4%, and tacked on further rate cuts for next year.
Fed members estimated that the benchmark rate will fall to 4.6% next year, suggesting three rate cuts in 2024, from a prior projections of 5.1%, or two rate cuts. For 2025, Fed members now expects the central bank to lower rates to 3.6% from 3.9% previously.
The move to forecast a step up in the number of rate cuts for next year was supported by expectations for inflation to fall faster than previously expected.
The Fed sees Core PCE, which excludes out food and fuel costs and is considered a better gauge of underlying inflation, at 3.2% this year, from a prior estimate of 3.7%. Inflation is expected to fall further next year to a 2.4% pace, down from a prior estimate of 2.6%, and to 2.2% in 2025, from a prior estimate of 2.3%.
The Fed's outlook on the labor market, meanwhile, was largely unchanged from the September meeting, with the unemployment rate expected to rise to 4.1% next year and remain at that rate in 2025.
The backdrop of expectations for inflation to fall faster than expected, and the labor market to remain intact stoked optimism that a soft landing is likely within the reach.
The economic growth outlook for this year was hiked to 2.6% from 2.1% previously, though the pace of growth, or GDP, is expected to fall to1.4% in 2024, from a prior estimate of 1.5% before picking up pace to 1.8% in 2025.