In the May CPI report, year-over-year headline inflation cooled to 3.3% from 3.4% – down one decimal, yet the median FOMC rate forecast for 2024 moved higher by half a percent.

As widely anticipated, the Federal Open Market Committee (FOMC) voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50% at its June meeting. The statement was largely unchanged though it did acknowledge that inflation has seen “modest further progress”, a slight improvement from “lack of further progress” stated at its May meeting. The committee likely quickly penciled this in following the May CPI report which showed broad cooling in price pressures.

Updates to the Summary of Economic Projections (SEP) were also largely uneventful though the biggest surprise came with the Fed dot plot: 

  • Real GDP growth projections was unchanged. 
  • Unemployment rate projections were nudged higher by 0.1% in 2025 and 2026.
  • Both headline and core PCE projections were raised 0.2% to 2.6% and 2.8% in 2024 and by 0.1% in 2025 to 2.3%, before normalizing to 2.0% by the fourth quarter of 2026. 
  • Median policy rate projections (dot plot) shifted to signaling just one rate cut this year, down from three rate cuts at its March meeting. Long run Fed funds rate projection was also raised to 2.8% from 2.6%.

Specifically, 4 officials are penciling in zero cuts, 7 are forecasting a single cut, and 8 are projecting two cuts this year. While this shift may be perceived as hawkish, the median estimate for rate cuts next year increased to four from three cuts previously. 

In the May CPI report, year-over-year headline inflation cooled to 3.3% from 3.4% – down one decimal, yet the median FOMC rate forecast for 2024 moved higher by half a percent. It’s difficult to square this circle other than the committee views inflation will remain stubbornly sticky through this year and is not confident enough in one inflation print, even though incoming data suggest improvement. That said, at the press conference, it seemed Chairman Powell continued to emphasize the uncertainty around the SEP and that the rate outlook will remain largely data dependent, perhaps dampening any perceived hawkishness.

Our base case view hasn’t changed, and our investment committee continues to expect the Fed to reduce rates 1 time this year.

FOMC June 2024 Forecasts

Percent

Chart Source: Federal Reserve, J.P. Morgan Asset Management. Data are as of June 12, 2024.
Forecasts of 19 FOMC participations, median estimate. Green denotes an adjustment higher, red denotes an adjustment lower. * Longer-run projection for core PCE inflation are not collected.

Vann Equity Management Investment Committee

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