Notes From The Desk: The Fed Announcement – Give & Take.
As expected, the Federal Reserve (Fed) left rates unchanged, but they did adjust their projections on the timing of cuts, pushing them further into the future.
The dot-plot thickens.
- 2024: Shifted from 3 cuts to 1 cut.
- 2025 & 2026: From 3 cuts to 4 cuts.
- Neutral revised higher from 2.6% to 2.75%.
The takeaways.
- The most important takeaway is that the Fed remains on track to cut this year and is not looking to hike further.
- Their language shifted from ‘a lack of progress’ to ‘there has been modest further progress’ on the inflation front.
- The neutral or long-term projection has been revised twice, from 2.5% to 2.75%. We see the potential for further upward revisions.
The market impact.
- After this morning’s lower-than-expected inflation numbers, US rates dropped 14-16 bps. After the announcement, yields gave back around half of that move and are now 6-8bps above today’s lows.
