Washington, D.C. – The Federal Open Market Committee (FOMC) decided to maintain the benchmark policy rate at 5.25%-5.50% during its June meeting, marking the seventh consecutive meeting without any changes. The latest dot plot released by the FOMC revealed a shift in the median projection, indicating the removal of two anticipated rate cuts from the 2024 rate projections. Market expectations had been for two cuts, but now there is only one 25 basis point reduction projected for this year.
Despite the FOMC’s stance, May’s lower-than-expected CPI print has raised concerns among market participants regarding the validity of the dot plot. Federal Reserve Chair Jerome Powell mentioned that FOMC voters had the option to adjust their projections after seeing the CPI data, but most officials chose not to do so. Powell emphasized the need for more confidence in inflation moving towards the Fed’s 2% target, potentially suggesting that further soft inflation prints could bring two rate cuts back on the agenda.
In terms of the economic backdrop, Powell described the current economy as solid but slower compared to the previous year. He noted improvements in the labor market balance and acknowledged modest progress in inflation towards the 2% goal. Powell highlighted the importance of seeing more positive data to strengthen the Fed’s confidence in achieving sustainable inflation.
The Summary of Economic Projections (SEP) saw minimal revisions, with GDP growth forecasts for 2024, 2025, and 2026 remaining unchanged. Unemployment rate forecasts for 2024 were left steady at 4.0%, while core PCE inflation forecasts were adjusted slightly. The major changes were seen in the dot plot, with the median projection anticipating rates to fall to 5.1% by the end of 2024, indicating one 25 basis point reduction.
Looking ahead, the timing of the first rate cut remains uncertain, with significant challenges surrounding inflation progress. While a September cut may be possible due to soft inflation prints, sustained deceleration in price pressures and evidence of labor market rebalancing are needed. Expectations include cuts in September and December, contingent upon convincing evidence of economic easing, weakened labor market conditions, and softer inflation trends.
