Fed Watch: At the Midway Point

Key Takeaways

  • The Federal Reserve (Fed) kept rates unchanged at the June Federal Open Market Committee (FOMC) meeting, marking the seventh consecutive meeting with no action on the rate front.
  • The Fed’s revised outlook now projects one rate cut for this year, down from the previous projection of three.
  • The Fed’s decision-making is primarily driven by monthly inflation reports and labor market data, and renewed progress on inflation is necessary for the Fed to feel comfortable enough to begin the rate cutting process.

Once again, the Fed kept rates unchanged at the June FOMC meeting. As a result, the Fed Funds trading range remains in the 5.25%–5.50% band that was introduced in July last year, and still resides at a more than 20-year high-water mark. For those keeping track, this represents the seventh consecutive FOMC meeting where the policy makers decided to take no action on the rate front. For calendar year 2024, we have now hit the midway point in terms of the number of annual FOMC meetings.

Despite economic and inflation data that has challenged prior rate cut expectations, Powell & Co. still seem to agree that a rate cut will more than likely occur sometime later this year. However, what this potential rate cutting episode could eventually look like is still up for debate. This point was underscored by the revision in the Fed’s own Federal Funds Rate forecast, known in market parlance as the dot plot.

Four times a year, the policy makers provide their Summary of Economic Projections (SEP), along with their usual FOMC meeting policy statement. Within the SEP lies the aforementioned dot plot, and the June meeting entails an updated forecast. Up until now, the Fed had been projecting three rate cuts for this year, but in their revised outlook, that number has now been reduced to one easing move, a bit less than money and bond market expectations. Based on recent Fed-speak, some reduction was arguably well telegraphed by the policy makers.