June 12th FOMC Follow-Up

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  • The FOMC announced today it will again leave the Federal Funds target rate unchanged at a range of 5.25 – 5.50%. This is the seventh consecutive meeting at which the rate has remained unchanged. The decision was approved unanimously by the committee and the outcome was widely expected by the market.
  • The committee adjusted the language in its statement to indicate that “there has been modest further progress” toward the 2%inflation objective, replacing previous language from the May statement that had indicated a lack of progress.
  • There were no changes to the previously announced plan to reduce the monthly caps on balance sheet runoff.
  • The FOMC decision comes on the heels of a relatively benign CPI report, which could have led some investors to expect more dovish guidance from the Fed. Fed Chair Powell confirmed in the press conference that today’s CPI information was considered by the committee in its decision. He commented that today’s CPI report helps build confidence that progress is occurring with respect to inflation, but that it is not yet enough to make a change in policy.
  • The market reaction was muted, with the S&P 500 closing the day up 0.85%, little changed from where it was trading shortly before the announcement. US Treasury rates ended lower, but closed above their intra-day trough. The 10-year US Treasury is now pricing at a 4.32% yield, with yield now closer to where it was sitting a week ago.

Economic Conditions

  • The Fed’s Summary of Economic Projections indicated no change to expected GDP numbers when compared with the March report. Committee participants anticipate a modest GDP decline from 2.1% in 2024 to 2.0% in 2025 and 2026, and a further decline to 1.8% in the longer run projection.
  • Expectations for PCE and Core PCE both increased in comparison to the March release, by 0.2 percentage points for 2024 and 0.1 percentage points for 2025.
  • Unemployment expectations for 2024 remained unchanged at 4.0% and increased by 0.1 percentage points for 2025, 2026, and the longer run projection.
  • The updated dot plot now indicates fed officials’ median outlook favors one rate cut by year-end. Four out of nineteen participants indicated they don’t anticipate a rate cut before the end of 2024, with the remainder almost evenly split between one or two cuts.

The FOMC is next scheduled to meet July 30th – 31st, 2024.

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