FOMC, Steady As She Goes
Ahead of the FOMC rate decision last night, markets were anticipating that the Fed would leave rates unchanged and deliver a very much “steady as she goes” message, and that is exactly what happened. The committee left the Fed funds target range at 5.25-5.50% and maintained three rate cuts for 2024. However, the median dot plots for 2025 and 2026 were modestly revised with officials now forecasting three cuts next year, instead of the four projected in December, followed by a further three 3 cuts in 2026.
There was a small drift higher in the long-run median dot to 2.56% from 2.50%, and Powell unsurprisingly highlighted the uncertainty of raising longer-run rates.
In terms of economic forecasts, the projected change in real GDP was increased to 2.1% for 2024, from 1.4% in December. In terms of inflation, the headline PCE projection was unchanged, while core PCE inflation forecasts were marginally higher at 2.6%, from 2.4%.
In the presser, Powell did acknowledge the spike in inflation at the start of this year, however, he did not think that the committee’s outlook was overly changed. “The story is really essentially the same” with “inflation coming down gradually toward 2% on a sometimes-bumpy path as I mentioned. I think that is what you still see, we're not going to over-react as well to these two months of data. We're not going to ignore them”, he stated.
Powell was asked what the Fed will be watching most to give them the confidence to cut rates, with his answer a surprise to no-one; the data.
The subject of quantitative tightening was also raised, given recent market speculation. Powell said: “It will be appropriate to slow the pace of run-off fairly soon”, adding that it is a debate amongst officials. However, he offered little in the way of a timeframe given “there’s no dollar amount or percentage of GDP or anything like that” to mark against.
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