Economic Commentary

Economic Commentary

June 12, 2024

Stronger economy and slower inflation slog keeps Fed on hold for longer

Executive summary

As widely expected, Federal Reserve (Fed) policymakers held the federal funds rate unchanged. The committee also maintained the slower pace of their balance sheet runoff, which just began this month. 

The fireworks were in the economic projections – the so-called ‘dot plot’ – which foresees just one rate cut this year, two fewer than the March projections, and now has four rate cuts penciled in for next year.

Chair Jerome Powell’s tone and comments stayed purposefully vague during the press conference, especially on the timing of a rate cut. Stocks seemed to breathe a sigh of relief, holding onto prior gains. However, bonds gave back some of the large gains achieved after the cooler May inflation reading this morning. 

Fed policy remains in a holding pattern, awaiting more cool data. While the May inflation reading was a good start, it sounds like the Fed needs several more months of cooling before the first rate cut of this cycle. Thus, we maintain our belief that progress on inflation should allow for at least one rate cut before the end of the year. 

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