The Federal Reserve left the Fed funds rate steady, in line with expectations. Fed Chairman Jerome Powell speaks at a press conference after the interest rate decision. At the press conference held after the meeting, Fed President Jerome Powell explains his decision to leave the policy rate, that is, the federal funds rate, unchanged in the range of 5.25%-5.5% and answers questions.
Fed President Jerome Powell speaks after the interest rate decision!
In March, the median Fed forecast was for three rate cuts. Markets also expect fewer cuts now as inflation generally exceeds forecasts in 2024. On the other hand, the May Consumer Price Index (CPI) report published on the same day pointed out a softer inflation. Markets are pricing in two discounts this year, the first of which will be in September. Amid these expectations, the Fed left interest rates constant, in line with expectations. After the interest rate decision, all eyes turned to Fed Chairman Jerome Powell for the critical messages he would give.
Powell: We don’t have more confidence in inflation for rate cut
- Our economy has made significant progress.
- Strong employment increases continue in the economy.
- Inflation has decreased significantly but is still very high.
- We continue to maintain a restrictive stance to keep demand in line with supply.
- Latest indicators point to economic growth still expanding strongly.
- A clearer signal is that private domestic final purchases remain strong.
- Consumer spending continues to be strong.
- Equipment investment has rebounded from an anemic pace.
- The labor market is becoming more balanced.
- The April and May employment rate is still strong, and the unemployment rate remains low.
- A broad set of indicators suggest that the labor market is returning to its pre-pandemic level.
- Overall, the broad set of indicators on the labor market suggest that the market is relatively tight but not overheated.
- We expect the labor market’s strength to continue.
- More recent readings on inflation have shown easing.
- So far this year, we don’t have any more confidence in inflation to cut rates.
- We will need to see more good data to support confidence about inflation.
Key takeaways from Fed policy statement and dot plot
- The median view of Fed officials for the end of 2024 is 5.1% (previously 4.6%).
- The median view of Fed officials for the end of 2025 is 4.1% (previously 3.9%).
- According to the median view of Fed officials, the Fed funding rate at the end of 2026 is 3.1% (previously 3.1%).
- The median view of Fed officials on the long-term funding rate is 2.8% (previously 2.6%).
- Fed projections envisage an interest rate cut of 25 basis points from the current level in 2024 and another 100 basis points in 2025.
- Fed policymakers expect end-2024 PCE inflation to be 2.6% versus 2.4% in the March projection; It sees core inflation at 2.8% versus 2.6%.
- Fed policymakers see GDP growth of 2.1% and unemployment rate of 4% in 2024; both were unchanged from March.
- Forecasts show 2025 PCE and core PCE inflation will be 2.3% versus 2.2% in March.
- Modest progress has been made towards the 2% inflation target.
- The Fed does not think it would be appropriate to reduce its policy target range until it gains greater confidence that inflation is sustainably moving toward 2%.
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