The Federal Reserve kept interest rates unchanged but hinted at a longer period of elevated rates. They anticipate one more rate hike this year and fewer cuts next year. The Fed also raised its economic growth forecast for this year to 2.1%. Additionally, they continue to reduce their bond holdings, reducing the balance sheet by $815 billion since June 2022. The decision was in line with market expectations, but uncertainty remains about future policy direction, leading to a 1% drop in the S&P 500 and a 1.5% decline in the Nasdaq Composite. Fed Chair Jerome Powell expressed caution about further rate hikes, emphasizing the need for progress in combating inflation. The dot plot shows a likelihood of one more hike this year and two cuts in 2024, with the funds rate projected at around 5.1%. In the long term, the Fed foresees a funds rate of 2.9% in 2026, above the neutral rate. The Fed's more hawkish stance is attributed to a tight labor market and persistent inflation concerns. Furthermore, the Fed raised its economic growth forecasts, expecting GDP to grow by 2.1% this year and 1.5% in 2024, indicating optimism about the economy's trajectory.
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