No Surprise, the Fed Now Sees One Rate Cut in 2024
Among all the words in the little-changed policy statement, there were three that jumped out.
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* The Fed left interest rates unchanged, but now only sees one rate cut this year.
* The policy statement notes “modest further progress” on inflation.
* The central bank still sees multiple rate cuts over the coming six quarters, taking some of the sting out of seeing just one cut this year.
* More after Fed Chair Powell’s presser.
The Fed’s latest policy statement is out and as expected it left interest rates unchanged, which leaves the Fed funds rate between 5.25%-5.5%. Among all the words in the little-changed policy statement, the three that jumped out are “modest further progress” when discussing inflation. Despite the improved month-over-month print in the May core CPI we discussed earlier, the Fed is probably pointing to the fact that the core CPI of 3.4% for May was still higher compared to January’s 3.1% figure. Our thinking after this morning’s CPI report was the Fed would reiterate its need to see more good data before beginning a rate-cutting cycle, and that’s what we got:
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
Below we’ve shared the updated set of economic projections the Fed published today and the ones from March. What should jump out is the number of rate cuts expected by the Fed has been narrowed to one this year from two. That fits with our thinking that we outlined earlier today, but is one less than the market has been expecting per the CME FedWatch Tool. That explains the market moving off its earlier highs. However, when we look at the combined 2024-2025 Fed funds forecast, the Fed still sees multiple rate cuts over the coming six quarters. That’s going to take some of the sting out of likely seeing just one cut this year.
The Fed did lift its PCE inflation projection but made no major changes to its GDP forecast for this year or next. When we look at 2025, the Fed has now penciled in four rate cuts, but that revised view still puts the Fed fund rates near 4.1%, higher than previously forecasted by the Fed.
Coming up will be Fed Chair Powell’s presser, and we’ll be listening for explanations behind the Fed’s updated economic projections, what they are watching as it relates to the economy, and what inflation figures could lead the Fed to start dialing back monetary policy.
