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(Bloomberg) — Federal Reserve officials penciled in just one interest-rate cut this year and forecast more cuts for 2025, reinforcing policymakers’ calls to keep borrowing costs high for longer to suppress inflation.

Officials voted unanimously to keep the benchmark federal funds rate in a range of 5.25% to 5.5% — a two-decade high first reached in July. But policymakers signaled they now expect to cut rates only once this year, compared to the three reductions forecast in March, according to the median projection.

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They now see four cuts in 2025, more than the three previously outlined.

Treasury yields remained lower after the statement. Traders held in place repricing that came through after the soft consumer price data earlier Wednesday that the Fed will reduce rates twice this year with the first likely move in November. The S&P 500 was higher as well.

Follow the reaction in real time on Bloomberg’s TOPLive blog

Individual officials’ views on the best path forward for borrowing costs, however, differed. The Fed’s “dot plot” showed four policymakers saw no cuts this year, while seven anticipated just one reduction and eight expected two cuts.

The Federal Open Market Committee adjusted language in its post-meeting statement released Wednesday, noting there has been “modest further progress toward the committee’s 2% inflation objective” in recent months. Previously, the statement pointed to a “lack” of further progress.

The change nods to more current data showing that price growth ebbed in April and May.

Chair Jerome Powell will hold a press conference with reporters at 2:30 p.m. following the conclusion of a two-day meeting in Washington.

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Fed officials have repeatedly said interest rates are likely to stay elevated for longer after price pressures picked up in the first quarter.

Data released earlier Wednesday offered some reassurance that progress toward their 2% inflation target has resumed. The so-called core consumer price index, which excludes food and energy, rose 0.2% in May and 3.4% from a year earlier, the slowest pace since 2021.

Before the decision, investors were betting the Fed would cut rates twice by year end, and saw a high likelihood of a first cut as soon as September, according to futures contracts. Other countries have already begun to lower borrowing costs. The European Central Bank cut interest rates last week, as did the Bank of Canada.

Fed officials also published fresh forecasts for inflation, raising their projection for underlying inflation to 2.8% from 2.6% in March.

They maintained their forecasts for economic growth and the unemployment rate at 2.1% and 4% respectively. The unemployment rate climbed to 4% in May.

Restrictiveness Debate

Officials also raised their projections for where interest rates will settle in the longer term, to 2.8% from 2.6% at the March gathering. The increase, following a slight bump in March, hints policymakers expect higher interest rates are here to stay.

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Some officials, including Dallas Fed President Lorie Logan, have said higher borrowing costs may not be slowing the economy as much as previously thought. Still others, such as New York Fed President John Williams, have said that policy is well positioned to bring inflation down to the Fed’s goal.

US central bankers are engaging in a broader discussion about whether the neutral rate, or the rate at which the Fed is neither slowing nor stimulating the economy, has risen since before the pandemic. A higher neutral rate would suggest that monetary policy is not doing as much to restrain the economy.

While US economic growth is moderating and spending is cooling, some aspects of the economy are proving more resilient to higher borrowing costs.

US nonfarm payrolls surged by 272,000 in May, surpassing all projections in a Bloomberg survey of economists, and average hourly earnings growth picked up.

The unemployment rate — which is derived from a separate survey — increased to 4% from 3.9%, rising to that level for the first time in over two years.

The Fed also said it would continue to shrink its balance sheet at the slower pace announced in May. Starting this month, the central bank will let its holdings of Treasury securities fall by up to $25 billion a month, down from the previous cap of $60 billion. The cap for mortgage-backed securities was left unchanged at $35 billion.

—With assistance from Kristy Scheuble, Matthew Boesler, Liz Capo McCormick, Molly Smith and Vince Golle.

(Adds dot plot and market reaction)

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