US Federal Reserve keeps key interest rate unchanged and foresees three rate cuts next year

WASHINGTON (AP) — The Federal Reserve kept its key interest rate unchanged Wednesday for a third straight time, and its officials signalled that they expect to make three quarter-point cuts to their benchmark rate next year.

Speaking at a news conference, Chair Jerome Powell said that Fed officials are likely done raising interest rates because of how steadily inflation has cooled.

"Inflation has eased over the past year but remains over our longer run goal of 2 per cent," Powell said after the Fed's 19-member policy committee ended its latest meeting.

On Wall Street, traders celebrated the prospect of lower rates ahead. Stock prices soared and bond yields sank after the Fed's policymakers signalled that they envision three interest rate cuts in 2024.

In response to a question, Powell said the Fed recognises that keeping rates high for too long, and waiting too long to cut them, could endanger the economy.

"We're aware of the risk that we would hang on too long" before reducing borrowing rates, the Fed chair said. "We know that's a risk, and we're very focused on not making that mistake."

Powell came close to declaring rate hikes over, although he refused to completely shut the door on more increases.

The central bank's policymakers, he said, "think it's not likely that they'll hike, although they don't want to take that possibility off the table."

But he acknowledged, far more openly than he has before, that Fed officials are now discussing the prospect for rate cuts. That marked a drastic shift from just a few weeks ago, when Powell said it would be "premature" to speculate about rate reductions.

Throughout his news conference, Powell expressed optimism that inflation, which has bedeviled American consumers and businesses for more than two years, is edging down toward the Fed's 2 per cent target. He noted, by example, that inflation has eased in goods, housing and services — three categories the Fed has been closely monitoring.

"Inflation keeps coming down, the labour market keeps getting back into balance and, it's so far, so good," Powell said.

The Fed chair downplayed one concern that some economists have expressed — that the final step down to 2 per cent inflation, from its current level of about 3 per cent, could be harder than the previous slowdowns in price increases.

"We kind of assume that it will get harder from here," he said. "But so far it hasn't."

The Fed kept its benchmark rate at about 5.4%, its highest level in 22 years, a rate that has led to much higher costs for mortgages, auto loans, business borrowing and many other forms of credit.

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