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United States Monetary Policy June 2024

United States: Central Bank maintains rates in June

At its meeting ending on 12 June, 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. 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 fell in April and is likely to trend down 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%. The Fed’s own projections are for the target range for the federal funds rate to end 2024 at 5.00%–5.25%, implying just one rate cut this year. This is broadly in line with our panelists, most of which see 0 to 2 rate cuts this year.

TD Economics’ James Orlando said:

“The market is no longer priced for two full 25 bps cuts this year – leaning more towards the median of the FOMC. We’d agree with that. We recently pulled back the timing of rate cuts, as economic growth and inflation have yet to convincingly provide the Fed with enough evidence that cuts are warranted.”

Nomura analysts were more dovish:

“Chair Powell downplayed the [Fed’s own forecasts] in his press conference, noting that most FOMC participants did not react to [the May] CPI data. He emphasized that the 2024 rate projections were a ‘close call.’ In our view, data this year will likely be sufficient for the Fed to cut twice this year, beginning in September.” 

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