The Federal Reserve is signaling a new rate hike this year and fewer cuts in 2024

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Federal Reserve officials on Wednesday signaled support for another rate hike this year and fewer cuts in 2024, even as the U.S. central bank kept its benchmark interest rate steady at a 22-year high.

The Federal Open Market Committee opted against an interest rate hike following its latest two-day meeting and voted unanimously to keep the federal funds rate between 5.25-5.5 percent. That was in line with the US Federal Reserve’s strategy of moving more cautiously in the last stages of the fight against inflation.

From March 2022, the central bank continued one of its most aggressive campaigns to stifle consumer and business demand in decades in a battle against price pressures that have proved more persistent than expected.

In a statement, the group said it was “highly focused on inflation risks,” noting that economic activity was expanding at a “solid pace” and that job gains, albeit slower, were “strong.”

The central bank released a new set of personal economic forecasts from its policymakers on Wednesday, which forecast stronger growth this year and a more benign inflation outlook compared to previous estimates released in June.

The projections, known as dot plots, also signaled support for the funds rate peaking between 5.5-5.75 percent — another quarter-point rate hike this year — and penciling in fewer interest rate cuts for 2024 and 2025.

The two-year Treasury yield, which moves in line with interest rate expectations, rose to its highest level since 2006 following the Fed’s report as investors priced in more this year. In the stock market, both the blue-chip S&P 500 and the tech-heavy Nasdaq Composite ended the day in negative territory.

Most policymakers now forecast the Fed funds rate to be between 5-5.25 percent by the end of 2024, up from 4.6 percent in June. They expect fewer cuts in 2025, with the median estimate revised to 3.9 percent from 3.4 percent. Policymakers also submitted their first forecasts for 2026, with year-end policy rates projected at 2.75-3 percent.

The median estimate of the “neutral” rate, which reflects the level at which growth is moderate or not depressed, was unchanged at 2.5 percent, though many officials penciled in a higher level.

Officials’ median estimate for GDP growth by year-end increased significantly from 1 percent to 2.1 percent and was revised down by 0.4 percentage points to 1.5 percent in 2024.

They cut their forecast for core inflation to 3.7 percent for 2023, from 3.9 percent earlier. They left their forecast for 2024 unchanged at 2.6 percent, while predicting inflation would only reach the central bank’s 2 percent target by 2026.

The unemployment rate is projected to reach just 4.1 percent by 2024, a lower peak than in June.

But given the risks some officials see facing the U.S. economy, there’s no guarantee the Fed will follow suit more tightly.

Officials are also aware that the impact of months of high interest rates, along with a cooling U.S. labor market, may now be evident.

New challenges to growth have also emerged, including student loan repayments, an unresolved auto workers’ strike and a government shutdown. Rising oil prices from recent supply cuts have raised concerns amid fears it could raise prices for goods and services.

Traders in the Fed Fund futures markets are betting that the Fed will keep rates at current levels through 2024. But a recent poll by the Financial Times and the University of Chicago’s Booth School of Business showed most of the Fed’s thinking. More work is needed to beat inflation.

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