Year-end Interest Rate Forecast Raised from 4.6% to 5.1%
11 of 19 FOMC Members Expect "One or Fewer Cuts"
Core PCE Inflation This Year Up 0.2%P to 2.8%
The U.S. Federal Reserve (Fed) held the benchmark interest rate steady as expected. Through the dot plot reflecting rate cut forecasts, the expected number of rate cuts within the year was sharply reduced from three to one.
On the 12th (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 seventh consecutive hold decision following September, November, and December of last year, and January, March, and May 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 explained, "Recent indicators suggest that economic activity is expanding at a solid pace," adding, "Job gains remain strong, and the unemployment rate is low. Inflation has eased over the past year but remains elevated." However, regarding inflation, it assessed that "there has been modest additional progress toward the 2% target in recent months."
The Fed stated, "Over the past year, risks to the achievement of employment and inflation goals have moved toward a better balance," but also noted, "It is not appropriate to reduce the target range until there is greater confidence that inflation will move sustainably toward 2%."
In the dot plot released that day, the Fed raised the year-end interest rate forecast from 4.6% presented in March to 5.1%. Initially, it was expected that the rate, currently at 5.25?5.5%, would be cut three times by 0.25 percentage points each within the year, but this time it signaled only one 0.25 percentage point cut. Regarding this year's rate cut outlook, among the 19 FOMC members, seven expected one cut within the year, four anticipated no cuts, and eight expected two cuts. The 2025 rate forecast was revised upward from 3.9% to 4.1%, changing from three cuts to four cuts. The 2026 rate forecast remained unchanged at 3.1%. The medium- to long-term rate forecast was raised from 2.6% to 2.8%.
With the Fed's rate hold at this FOMC meeting confirmed, market attention focused on the dot plot showing this year's rate outlook. The dot plot represents the interest rate forecasts of all 19 members, including those who participate in the FOMC rate decision votes and those who do not, expressed as dots.
The Fed also updated the Summary of Economic Projections (SEP), which is released quarterly and includes GDP, inflation, and unemployment forecasts. The inflation forecast for this year, based on the core Personal Consumption Expenditures (PCE) price index, which the Fed closely monitors, was raised by 0.2 percentage points to 2.8%. It is expected to slow to 2.3% in 2025 and 2.0% in 2026. The GDP growth forecast for this year was maintained at 2.1%.
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