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United States Monetary Policy May 2024

United States: Central Bank maintains rates in May

At its meeting ending on 1 May, the Central Bank decided to maintain the target range for the federal funds rate at 5.25%–5.50%, as expected by markets.

The Bank decided not to start cutting rates because both headline and core inflation were still above the Fed’s 2.0% target range and headline inflation has overshot market expectations every month so far this year. Solid economic activity further dissuaded the Bank from cutting; the Fed noted strong recent job gains and a low unemployment rate. On the flipside, renewed rate hikes were not warranted given that inflation is still likely to trend down towards the target later this year.

The Central Bank indicated it does not expect to reduce the target range until greater confidence is achieved that inflation is moving sustainably toward 2.0%. Over the last month, our panelists have continued to reduce their expectations for rate cuts this year in light of recent inflation overshoots. The Consensus is now for a little over 50 basis points of cuts by end-2024, with monetary easing only expected to ensue from Q3. This contrasts our forecasts at the end of last year for around 100 basis points of cuts by end-2024.

United Overseas Bank’s Alvin Liew said:

“Our view remains unchanged that the Fed will keep its current FFTR steady at 5.25-5.50% and maintain this terminal FFTR level for longer beyond Jun-2024 where we factor in 50 bps of rate cuts for 2024 (i.e. two 25-bps cuts, one each in Sep 24 and Dec 24). Admittedly, the risk is still tilted towards the Fed delaying cuts even further, nudged by a slow inflation descent.”

Desjardins’ Francis Généreux was more hawkish:

“It […] seems like the Fed needs more time before it will consider lowering rates. The first cut may not happen until November.”

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