US Fed Holds Benchmark Interest Rate Steady for 5th Consecutive Time... Maintains Outlook for 3 Rate Cuts This Year

Base Interest Rate Held at 5.25~5.5%
Three Rate Cuts Expected This Year Maintained
GDP Growth Forecast Raised to 2.1%... Inflation Outlook Increased to 2.6%

The U.S. Federal Reserve (Fed) has kept the benchmark interest rate unchanged as expected. Through the dot plot, the year-end interest rate forecast was maintained at 4.6% (median), the same as before, indicating that the number of rate cuts this year will be three, as announced in December.

[Image source=Yonhap News]

On the 20th (local time), the Fed announced after the Federal Open Market Committee (FOMC) regular meeting that it would keep the federal funds rate unchanged at 5.25?5.5%. This marks the fifth consecutive hold following decisions in September, November, and December of last year, and January of this year. The interest rate gap with South Korea was maintained at 2 percentage points at the upper bound.

In the policy statement, the Fed said, "Recent indicators suggest that economic activity is expanding at a solid pace," adding, "Job gains remain strong, and the unemployment rate remains low. Inflation has eased over the past year but remains elevated." It further explained, "In considering adjustments to the target range for the federal funds rate, we will carefully assess incoming data, evolving outlook, and the balance of risks," and stated, "It is not appropriate to reduce the target range until we have greater confidence that inflation is moving sustainably toward 2%."

This reaffirmed the cautious stance of the January FOMC that it will not cut rates until further evidence of sustained inflation slowdown is confirmed.

While the market had already anticipated the rate hold, the key focus of this FOMC was the dot plot showing the interest rate outlook for this year. The dot plot represents the interest rate projections of all 19 members of the FOMC, including both voting and non-voting members, depicted as dots.

In the dot plot released that day, the Fed maintained the year-end interest rate forecast at 4.6%, unchanged from before. This signals the possibility of three 0.25 percentage point rate cuts from the current 5.25?5.5% level. However, the number of cuts was revised from four to three in 2025, and from three to five in 2026. After 2026, the rate is expected to fall to 2.6%, which is considered the 'neutral rate' that neither stimulates nor restrains economic growth.

On the same day, the Fed also updated the Summary of Economic Projections (SEP), which is released quarterly and includes GDP, inflation, and unemployment forecasts. The GDP growth forecast for this year was significantly raised from 1.4% to 2.1%. The unemployment rate was lowered from 4.1% to 4%. Inflation, measured by the core Personal Consumption Expenditures (PCE) price index, which the Fed closely monitors, is expected to rise by 0.2 percentage points to 2.6% compared to the previous forecast.

With the Fed maintaining the number of rate cuts at three this year, the New York stock market is rising across the board. The Dow Jones Industrial Average, composed of blue-chip stocks, is up 0.26% as of 2:24 PM compared to the previous close. The S&P 500 and Nasdaq indices are also up 0.21% and 0.41%, respectively.

This content was produced with the assistance of AI translation services.