The US Federal Reserve is likely to cut interest rates only once for the rest of 2024, according to its “dot plot.” This is sharply down from the three rate cuts it had forecast after its meeting in March this year.
On Wednesday, the US central bank decided to keep interest rates unchanged at a 23-year high of 5.25-5.50 percent as inflation data showed milder-than-expected price increases.
The dot plot indicates what the members of the Federal Open Market Committee (FOMC) believe should be the appropriate interest rate over various time periods.
Of the 19 FOMC members, four officials voted in favor of no cuts in 2024, seven members predicted one rate cut and the remaining eight officials forecast two rate cuts for 2024.
US equity markets surged following the Fed decision to keep interest unchanged with the S&P 500 and Nasdaq hitting record highs. Surprisingly, the market was unfazed by the reduction in the number of possible rate cuts ahead, considering that a large section was expecting four rate cuts in 2024.
While the dot plot gives an idea of where interest rates are headed in the medium term, it is not always an effective tool, as the latest development shows.
It has been off the mark in the past too. During the December 2021 meeting, the Federal Reserve's dot plot indicated that the interest rate would hover between 0.75 percent to 1 percent by the end of 2022. However, by the end of the year, rates surged to 4.25 percent to 4.5 percent.
The Fed’s decision to delay a cut in interest rate may not have any implication for interest rates in India. Reserve Bank of India (RBI) Governor Shaktikanta Das last week said that the Monetary Policy Committee (MPC) would be looking at domestic conditions while deciding on rate cuts, and that it will not be following the Fed.
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