EconoFACTS

June 12, 2024 | 14:53

FOMC Policy Announcement & SEP — Higher for a Little Longer

Economist

Deputy Chief Economist and Managing Director
Economics

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial m... (Read more)

Michael Gregory , CFA

Deputy Chief Economist and Managing Director
Economics

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial m... (Read more)

As expected, the FOMC left policy rates unchanged for the seventh straight meeting with the fed funds target range at 5.25%-to-5.50%. In the statement, the inflation assessment shifted slightly from there being “a lack of” further progress to there being “modest” further progress towards the 2% target. This follows the morning’s better-than-expected CPI report for May.

While this is slightly more encouraging for potential rate cuts this year, the Summary of Economic Projections (SEP) and the ‘dot plot' showed the median FOMC call now at one cut for this year, down from three in March (we were expecting two). Note that 8 participants had two cuts for this year (the modal view), but 7 had one and 4 had none. For next year, the cumulative easing action was upped to 100 bps from 75 bps, and this was the same for 2026, ending up where we were before. However, the longer-run level was raised slightly to 2.75% from the midpoint of the 2.625%-to-2.75% range.

The higher policy rate profile, for longer, mirrored the lifting of the median inflation projection by a couple of tenths for this year (total 2.6%, core 2.8%) and a tenth for next year (2.3% for both). The growth forecasts were unchanged, in the 2.0%-to-2.1% range, but the jobless rate was lifted by a tenth in the two outer years (the worst result being 4.2% next year, bang on the longer run level).

In the early part of the press conference, Chair Powell didn't mention anything he hadn't mention before.

Bottom line: We continue to look for two Fed rate cuts this year (September and December). Between now and the expected inaugural action, there will be three CPI and PCEPI reports along with three employment reports. There is plenty of time, and data, for the FOMC to shift its assessment from “modest” further progress to a sufficient degree of ‘confidence-building’ progress to start cutting policy rates.