Fed eyes just 1 rate cut in 2024 despite inflation news

WASHINGTON (Reuters) -- The U.S. Federal Reserve held interest rates steady on Wednesday and pushed out the start of rate cuts to perhaps as late as December, with officials projecting only a single quarter-percentage-point reduction for the year amid rising estimates for what it will take to keep inflation in check.

In a set of projections that likely removes the prospect of a reduction in borrowing costs before the Nov. 5 U.S. presidential election, Fed officials repositioned from expecting three quarter-percentage-point reductions in March to just the one despite an acknowledgement in the U.S. central bank's new policy statement of "modest further progress" towards its 2% inflation target -- an upgrade from its May 1 statement.

Fed Chair Jerome Powell, speaking at a news conference following the end of the two-day policy meeting, said that combination reflected a "conservative" outlook for inflation among policymakers. Even as "more recent monthly readings have eased somewhat," that is not yet enough to instill "greater confidence" in inflation returning sustainably toward 2%.

"It's only one reading," Powell said of a Labor Department report earlier on Wednesday showing the consumer price index eased last month more than expected.

"When we are [more confident], then we can look at loosening policy," Powell said.

The shift among policymakers also coincided with an increase to 2.8% in the estimated long-run, or "neutral," rate of interest from 2.6%, which indicates policymakers have concluded the economy needs more restraint to finish the battle against rising prices.

Recent progress has been slow, and Fed officials now project a slightly higher end-of-year inflation rate of 2.6% versus the 2.4% anticipated as of March.

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