Posted on 06/12/2024 11:06:25 AM PDT by Miami Rebel
The Federal Reserve on Wednesday kept its key interest rate unchanged and signaled that just one cut is expected before the end of the year.
With markets hoping for a more accommodative central bank, Federal Open Market Committee policymakers following their two-day meeting took two rate reductions off the table from the three indicated in March. The committee also signaled that it believes the long-run interest rate is higher than previously indicated.
New forecasts released after this week’s two-day meeting indicated only slight optimism that inflation remains on track to head back to the Fed’s 2% goal, allowing for some policy loosening later this year.
“Inflation has eased over the past year but remains elevated,” the post-meeting statement said, echoing language from the last statement. In the only substantive change, the new statement followed with, “In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective.”
The previous language said there had been “a lack of further progress” on inflation.
The committee, in its closely watched “dot plot” of individual participants’ rate expectations, did indicate a more aggressive cutting path in 2025, with four reductions totaling a full percentage point anticipated, up from three.
For the period through 2025, the committee now sees five total cuts equaling 1.25 percentage points, down from six in March.
If the projections hold, it would leave the federal funds rate benchmark at 4.1% by the end of next year, higher by 0.2 percentage point than the March outlook.
Another significant development occurred with the projection for the long-run rate of interest, essentially a level that neither boosts nor restricts growth. That moved up to 2.8% from 2.6%, a nod that the higher-for-longer narrative is gaining traction among Fed officials.
In a further indication of a hawkish bent from central bankers, the dot plot showed four officials in favor of no cuts this year, up from two previously.
Elsewhere in the FOMC’s Summary of Economic Projections, participants raised their 2024 outlook on inflation to 2.6%, or 2.8% when excluding food and energy. Both inflation projections were 0.2 percentage point higher than in March.
The Fed’s preferred inflation gauge is the Commerce Department’s personal consumption expenditures price index, which showed respective readings of 2.7% and 2.8% for April. The Fed focuses more on core inflation as a better long-term indicator. The SEP indicates inflation returning to the 2% target, but not until 2026.
The decision and informal forecasts from the 19 meeting participants come during a volatile year for markets and investors’ hopes that the Fed would start easing after it raised benchmark rates to their highest level in some 23 years.
The federal funds rate, which sets overnight borrowing costs for banks but feeds into many consumer debt products, is targeted in a range between 5.25%-5.5%, the result of 11 rate increases between March 2022 and July 2023.
Earlier in the day, as Fed officials were preparing their economic and rate outlooks, the Bureau of Labor Statistics released the consumer price index for May. The report showed that inflation was flat on the month while the annual rate edged lower from the rate in April to 3.3%.
That’s still well above the Fed’s 2% target but also considerably below the peak of just over 9% seen nearly two years ago. Core readings excluding food and energy prices were at 0.2% and 3.4% respectively.
In the first quarter of 2024, economic data softened from where it had been for most of the previous year, with GDP rising at just a 1.3% annualized pace. April and May have been a mixed bag for data, but the Atlanta Fed is tracking GDP growth at 3.1%, a solid pace especially in light of persistent recession worries that have dogged the economy for the past two years.
Inflation data, though, has been equally resilient and has posed problems for central bankers.
The year began with markets expecting a vigorous pace of rate cuts, only to be thwarted by sticky inflation and statements from Fed officials that they are unconvinced that inflation is heading back convincingly to target.
That’s a fair point. Basically we’re damned if we do (raise rates) and damned if we don’t.
By the way, does anyone know when we last had an actual federal budget? Aren’t all these CR’s that keep raising the debt ceiling unconstitutional? Seems like it.
It misses nothing. ANd if you look closely, it puts the claim that “inflation has been trending down” in perspective (ie, reality).
After years of parabolic price increases a few months of merely average ones are effectively meaningless to anyone who has to buy stuff.
2021 - 4%
2022 - 10%
2023 - 6%
2024 - 2.3 so far
You reason in synch with the beaurocrats who push the press releases — decreasing increases is good news!
Most of us are still gonna pay upwards of 50 grand for new pickup truck — 400% the cost of my first one.
Most of us are gonny pay upwards of a half a million dollars for a starter home on a postage stamp lot in some subdivision — 55 times what my parents paid for the one I was born in.
Enjoy your stats, bro!
That too.
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