By Ann Saphir

(Reuters) – U.S. central bankers believe they’ll cut interest rates just once this year, two fewer than they thought in March as inflation approaches their 2% goal more slowly than they had expected.

That’s according to the median of new economic projections published on Wednesday by the Federal Reserve at the end of their June 11-12 meeting along with the widely expected decision to keep the policy rate unchanged in the 5.25%-5.5% range.

By the end of 2025, policymakers anticipate a policy rate of 4.1%, according to the median of their projections, implying an additional four quarter-of-a-percentage-point cuts next year.

In March, the last time the Fed released quarterly projections, most U.S. central bankers anticipated at least three 25 basis point rate cuts in each of 2024 and 2025. That would have put the policy rate in the 3.75%-4% range by the end of next year.

A run of stronger-than-expected inflation earlier this year has forced U.S. rate-setters to recalibrate, writing down a slower start to rate cuts in the face of an economy proving more resilient than expected to the braking power of high borrowing costs.

It was not immediately clear how data released on Wednesday showing no rise in consumer prices in May from April may have factored into their forecasts.

The Fed has kept its target for the overnight bank-to-bank lending rate in its current range since last July in a bid to squeeze high inflation out of the economy without massive harm to the job market.

Four Fed policymakers feel the Fed should not cut rates at all this year, the fresh projections show. Three months ago just two thought so.

Meanwhile seven policymakers believe a single rate cut will be appropriate by year’s end, compared with eight who believe two rate cuts will be needed.

INFLATION RETHINK

Policymakers are now penciling in a fourth-quarter inflation rate of 2.6%, based on the year-over-year change in the personal consumption expenditures price index, which they target at 2%.

That’s slightly higher than the 2.4% they saw in March, according to the projections, even as they expect to keep borrowing costs higher for longer. PCE inflation registered 2.7% in each of the last two months.

The forecasts are not a consensus view, but rather a midpoint of the individual expectations of the Federal Reserve’s seven Washington-based governors and the 12 Fed bank presidents that is meant to offer some guidance on policymakers’ thinking.

Core PCE inflation – which strips out the cost of food and energy and which the Fed uses to gauge underlying price pressures – will be at 2.8% in the fourth quarter of 2024, and at 2.3% in the fourth quarter of 2025, according to the median projections.

That compares with the March median projection of 2.6% in 2024 and 2.2% in 2025.

The economic projections suggest Fed policymakers continue to expect a so-called soft landing, where the economy slows and inflation falls without a surge in joblessness.

Fed policymakers do see the unemployment rate, now at 4%, rising to finish 2025 at 4.2%, higher than the 4.1% they had forecast in March.

They left their forecasts for U.S. economic growth unchanged, at 2.1% this year, and 2.0% next year.

Fed policymakers also lifted their estimates of the longer-run neutral rate – a policy rate that neither slows nor stimulates a healthy economy – to 2.8%, from 2.6% in March and 2.5% last December. The increase may suggest that the Fed may ultimately not end up cutting rates as much as previously thought.