The Federal Reserve raised the U.S. economic growth rate this year to 2.6%, suggesting that it may cut interest rates three times next year

At 2 a.m. Beijing time on December 14, the Federal Reserve announced that it would maintain the target range of the federal funds rate at 5.25%-5.5%, maintaining the highest level in 22 years, in line with market expectations. This is the fourth time in this current interest rate hike cycle that the Federal Reserve has paused raising interest rates, following the previous pauses in June, September, and November. Since the Federal Reserve launched this round of interest rate hikes in March 2022, the cumulative rate of interest rate hikes has reached 525 basis points. The December interest rate resolution suggested that the interest rate hike cycle has come to an end.

FOMC Participants’ Assessment of Appropriate Monetary Policy: Midpoint of the Federal Funds Rate Target Range or Target Level

The dot plot released by the Federal Reserve on the same day released a dovish signal.

Specifically, regarding the forecast for the federal funds rate in 2024, 2 Federal Reserve officials predicted that the interest rate will remain at 5.25%-5.5%. 17 Federal Reserve officials all predicted that the interest rate will fall below 5.25%, and 1 of them predicted that the interest rate will be maintained at 5.25%-5.5%. will drop below 4%. The median interest rate forecast of 4.6% means that the Fed may cut interest rates three times next year.

Regarding the federal funds rate in 2025, one Fed official predicted that the interest rate would be between 5.25% and 5.5%, while 17 others predicted that the interest rate would be below 4.5%, and 2 of them predicted it would be below 3.0%.

It is worth mentioning that the predictions of the dot plot may not be accurate. For example, the dot plot released at the interest rate meeting in September this year suggested that interest rates may be raised once in 2023, but the Federal Reserve has since maintained a pause in interest rate increases.

The November meeting also released expectations for inflation, unemployment and economic growth.

Compared with September, the Federal Reserve raised its forecast for U.S. economic growth in 2023 to 2.6% (September forecast 2.1%), and lowered its forecast for 2024 to 1.4% (September forecast 1.5%), maintaining the 2025 forecast. The forecast is 1.8% (September forecast 1.8%), and the 2026 forecast is revised upward to 1.9% (September forecast 1.8%).

The Fed forecasts the unemployment rate to be 3.8% this year (September forecast 3.8%) and maintains its forecast for 2024 at 4.1% (September forecast 4.1%). The PCE (Personal Consumption Expenditure) inflation forecast for this year is lowered to 2.8% (September forecast value is 3.3%), and the forecast for 2024 is lowered to 2.4% (September forecast value is 2.5%). The core PCE inflation forecast for this year has been lowered to 3.2% (September forecast of 3.7%), while the 2024 forecast has been lowered to 2.4% (September forecast of 2.6%).

On the day the Federal Reserve's December interest rate resolution was released, all three major U.S. stock indexes closed higher, with the Dow Jones Industrial Average rising 1.40%, the Nasdaq Composite Index rising 1.38%, and the S&P 500 Index rising 1.37%.