FOMC Review: Maintain a cautious attitude towards early interest rate cuts
2024-06-14
■ The Federal Reserve Board (FRB) acknowledges that the slowdown in inflation has progressed moderately but has raised its price outlook for 2024 and 2025
■ FOMC participants lowered their policy interest rate outlook once within the year but increased it to four times in 2025
The Federal Reserve (FRB) has maintained its federal funds rate guidance target at 5.25-5.50% for the seventh consecutive time. The statement highlights that there has been no progress toward the target inflation rate of 2%, and the understanding from the previous meeting (April 30- May 1) has been revised to 'slight progress.' The statement also reiterates the last meeting's stance on future monetary policy, indicating that 'it is appropriate not to expect interest rate cuts until there is unprecedented confidence that inflation rates will continue to move towards 2%.'
According to the New Summary of Economic projection (SEP) of FOMC participants, the policy interest rate outlook (median) will be raised from 4.625% to 5.125% at the end of 2024, implying a reduction in the number of rate cuts this year from three in March to one. However, by the end of 2025, the interest rate was raised from 3.875% to 4.125%, and the number of interest rate cuts is expected to increase from three to four. At the end of 2026, it remained unchanged at 3.125%, and the long-term outlook considered neutral interest rate was raised from 2.625% to 2.825%. For the inflation indicator that FRB values, the core personal consumption expenditure (PCE) index outlook is 2.8% at the end of 2024 and 2.3% at the end of 2025, up from 2.6% and 2.2% in March, respectively.
At a press conference, Chairman Powell of FRB pointed out that although economic growth is steady, employment continues to grow strongly. The Consumer Price Index for May is only a monthly data, and they will continue to maintain a cautious attitude, avoid turning to loosen policies, and avoid mentioning the start of interest rate cuts until they receive greater certainty that the inflation rate will continue to move towards 2%. According to the results of this meeting, the federal funds rate futures market is expected to have a slightly higher probability of rate cuts starting in September than 50%, with one or two rate cuts.
■ FOMC participants lowered their policy interest rate outlook once within the year but increased it to four times in 2025
The Federal Reserve (FRB) has maintained its federal funds rate guidance target at 5.25-5.50% for the seventh consecutive time. The statement highlights that there has been no progress toward the target inflation rate of 2%, and the understanding from the previous meeting (April 30- May 1) has been revised to 'slight progress.' The statement also reiterates the last meeting's stance on future monetary policy, indicating that 'it is appropriate not to expect interest rate cuts until there is unprecedented confidence that inflation rates will continue to move towards 2%.'
According to the New Summary of Economic projection (SEP) of FOMC participants, the policy interest rate outlook (median) will be raised from 4.625% to 5.125% at the end of 2024, implying a reduction in the number of rate cuts this year from three in March to one. However, by the end of 2025, the interest rate was raised from 3.875% to 4.125%, and the number of interest rate cuts is expected to increase from three to four. At the end of 2026, it remained unchanged at 3.125%, and the long-term outlook considered neutral interest rate was raised from 2.625% to 2.825%. For the inflation indicator that FRB values, the core personal consumption expenditure (PCE) index outlook is 2.8% at the end of 2024 and 2.3% at the end of 2025, up from 2.6% and 2.2% in March, respectively.
At a press conference, Chairman Powell of FRB pointed out that although economic growth is steady, employment continues to grow strongly. The Consumer Price Index for May is only a monthly data, and they will continue to maintain a cautious attitude, avoid turning to loosen policies, and avoid mentioning the start of interest rate cuts until they receive greater certainty that the inflation rate will continue to move towards 2%. According to the results of this meeting, the federal funds rate futures market is expected to have a slightly higher probability of rate cuts starting in September than 50%, with one or two rate cuts.