Print
The Federal Open Market Committee (FOMC) met this week and voted unanimously to hold rates steady for the seventh consecutive meeting, leaving its policy range at 5.25 percent to 5.5 percent. This decision was widely anticipated, with futures markets pricing in a near-zero percent chance of a rate cut in the days and weeks leading up to the meeting.
As we approach the second half of the year, what contributed to this month’s decision and what are Fed officials forecasting for the remainder of 2024?
Fresh Prints
May’s inflation data was released mere hours before the FOMC announced its rate decision. While the timing certainly gives us a lot to think about in one day, it likely did not complicate much for Fed officials because their policy adjustments are generally based on longer-term trends rather than individual data points.
The data wasn’t far from economist expectations and came in better than anticipated on both a headline and core (excluding food and energy) basis. The headline Consumer Price Index (CPI) remained flat month-over-month and came down to 3.3 percent from a year prior. Core CPI increased 0.2 percent for the month and was down to 3.4 percent year-over-year. These figures show continued progress in the fight against rising prices.
In addition to consumer price figures, May’s employment data was recently announced and provided more context to help guide Fed policy. The unemployment rate ticked up to 4 percent for the first time since 2021, yet additions to non-farm payrolls were robust and beat expectations. This suggests that Fed policy is having the intended restrictive impact without excessively drying up the labor market, allowing conditions to come into better overall balance.
Between the employment and inflation prints and continued economic growth, there is plenty of material to support the “higher for longer” narrative while providing hope that things are heading in the right direction. With that in mind, what are FOMC members expecting for the back half of the year?
Connecting the Dots
Yesterday’s meeting came with an updated Summary of Economic Projections (SEP), including a refreshed dot plot showing where committee members expect rates to land over the coming quarters. This update shows median expectations for a single rate cut by the end of 2024, a decrease from the previous median projection of three cuts. As we’ve seen, these projections can change over time and are nowhere near certain, but they help provide additional insight into what Fed officials are paying attention to and how they foresee things playing out based on currently available data.
All in all, the Fed’s general stance hasn’t changed much since its last meeting. Current monetary policy is working, but there is still plenty of work to be done. Will these trends continue through the summer months ahead, or will there be more bumps in the road that call the sustainability of the current path into question?
More to Come This Summer
Ultimately, the FOMC maintains its stance of meeting-to-meeting data dependency, so we’ll be keeping tabs on incoming data and additional Fed comments in the weeks and months to come. We plan to continue these post-meeting blogs, so be sure to subscribe to The Independent Market Observer to stay up to date. The next FOMC meeting is scheduled for July 30–31, and we’ll be here to help you digest Fed developments as we get further into the year.
