Notes From The Desk – FOMC Meeting – Sticking To The Plan
Today’s FOMC meeting was more about what did not change. Given the stronger-than-expected inflation data this year, the market feared that the Federal Reserve (Fed) would dial back the number of rate hikes to expect this year. Despite modest changes to forecasts in 2025 and for the long-run Fed Funds rate, the committee left the 2024 forecast unchanged.
The Numbers:
- The median forecast shows Fed Funds falling to 4.625% by year-end (3 cuts)
- The median forecast for 2025 is now 3 cuts (previously was 4).
- The long-run Fed Funds rate is now expected to be 2.6% instead of 2.5%
The Press Conference:
We were intrigued by a few points Chairman Powell made during the press conference.
- He sees the risk of easing too soon or too late as equally weighted. The former risks reviving inflationary pressure, while the latter could lead to a rise in unemployment.
- He is not worried about the recent stronger inflation data by pointing out it was in line with expectations for a bumpy ride toward 2%.
- Weakness in employment data could warrant a more significant response by the Fed
Implications.
The yield curve is steepening with 2yr yields dropping 5 – 7 bps while 10yr yields are only 1-2bps lower. With reassurances that rate cuts are coming, yields ought to drift lower over the next couple of days.
