Evening Brief – 03.20.24
Still Three Cuts
The Federal Open Market Committee (FOMC) maintained the federal funds target range of 5.25% to 5.50% on Wednesday, as widely expected, following its two-day monetary policy meeting.
The FOMC statement remained basically unaltered from the previous one in January, recognizing ongoing economic growth, particularly in the US labor market, and stubborn inflation.
“Job gains have remained strong, and the unemployment rate has remained low,” read the statement. “Inflation has eased over the past year but remains elevated.”
Fed officials still aim to cut interest rates by three-quarters of a percentage point by the end of the year, keeping to an earlier projection despite recent mixed economic data.
“We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said in the press conference following the meeting.
However, the FOMC anticipates fewer interest rate cuts in 2025 than originally expected.
The median estimate in the Federal Reserve’s Summary of Economic Projections, or “dot plots,” calls for a target range for the federal-funds rate of 4.5% to 4.75% by the end of 2024, which is unchanged from the last dot plot delivered in December.
However, the median dots for 2025, 2026, and later years have risen. It indicates that officials collectively expect the U.S. economy to be able to sustain more restrictive monetary policy without slowing growth, and that inflationary pressures will be more difficult to alleviate.
The median estimate for the fed-funds rate target range at the end of 2025 rose to 3.75% to 4% from 3.5% to 3.75% in December. For the end of 2026, the median dot now indicates a target range of 3% to 3.25%, up from 2.75% to 3% in December. Officials’ median longer-term projection was for a target range of 2.5% to 2.75%, which was also a quarter percentage point higher than December.
There are signals that U.S. economic growth is slowing, but not enough to raise concerns that FOMC members should cut interest rates faster or sooner than they are signaling to combat the prospect of a recession risk, which is now low.
The current odds for the first quarter-point interest rate cut are roughly 70% for the June 12 meeting. That’s roughly unchanged from two weeks ago and little changed ahead of the FOMC announcement.