At the June interest rate meeting, the Federal Reserve remained steadfast as scheduled: maintaining the target range of the federal funds rate at 5.25% to 5.50% unchanged. This is the seventh consecutive time since September last year that the bank has maintained interest rates unchanged.
Although the interest rate decision was not unexpected, it is worth noting that the latest "dot matrix" released by the Federal Reserve has significantly reduced interest rate expectations: from three in March to only one. Specifically, 11 officials believe that interest rates will only be lowered once at most this year, while the remaining 8 are expected to lower rates twice.
As for inflation, the Federal Reserve's view has also undergone substantial changes. The bank now believes that there has been some further progress in achieving the committee's 2% inflation target in recent months. Powell emphasized that although he acknowledged the recent easing of monthly inflation data, his confidence has not yet reached the level of interest rate cuts.
Wall Street analysts have made the following comments on this:
Bill Adams, Chief Economist of Comerica Bank
Importantly, the opinion balance in the dot matrix does not necessarily reflect how FOMC will vote from now to the end of the year. All regional Federal Reserve chairpersons have a point in the dot matrix, but only a few have voting rights in FOMC decisions. The majority of the votes are cast by the Federal Reserve directors, who are often more receptive to the idea of interest rate cuts. This suggests that the majority of voting FOMC members may believe that lowering interest rates twice before the end of the year may be the most appropriate.
At the same time, if economic data differs from their expectations, most people will not feel obligated to insist on a rate cut. The members of FOMC have repeatedly emphasized that they will make decisions in each meeting based on the upcoming data.
In short, the Federal Reserve clarified their decision-making process at today's meeting, and policymakers are responding to upcoming data in a consistent manner with this process. If inflation continues to slow down, just like the trend of the past year and a half, the Federal Reserve will start cutting interest rates in the second half of 2024.
Quincy Krosby, Chief Global Strategist at LPL Financial
The statement from the Federal Reserve acknowledges that inflation is moving towards the Fed's target of 2%, but does not imply that the Fed is moving towards loose monetary policy. This is likely because the Federal Reserve does not want to unnecessarily relax financial conditions, as the data dependent Federal Reserve needs a series of cooling inflation reports to initiate a rate cut cycle.
Chris Low, Chief Economist of FHN Financial
This indicates that it is still too early to be overly excited about interest rate cuts. The latest May CPI release is good news, but the one or two rate cuts implied by the June "dot matrix" remind us that we need more reports like May before the Federal Reserve can confidently cut rates.
NATE Thoft, Chief Investment Officer and Senior Portfolio Manager of the Multi Asset Solutions Team at Manulife Investment Management
The biggest gain of this meeting is the change in the dot matrix, from three 25 basis point interest rate cuts to one rate cut for the remaining time of 2024. Although the median prediction is 1, the latest voting result is between 1 or 2. But in 2025, the median forecast for interest rate cuts will increase from the previous three to four. Therefore, the net impact for the next 18 months is a 25 basis point reduction in interest rates.
In addition, moderate adjustments to the inflation and unemployment rate estimates are also worth noting and necessary modifications to support a reduction in the number of interest rate cuts.
Greg Mcbride, Chief Financial Analyst at Bankrate, a consumer financial services company
The May CPI released on Wednesday morning is the inflation report we need to see more in the coming months. The only acknowledged implication in the Federal Reserve statement is that there has been "moderate" progress in achieving the 2% inflation target, rather than the "lack" of progress mentioned in March.
Gene Goldman, Chief Investment Officer of Cetera Investment Management
Although the Federal Reserve has lowered its expectation of interest rate cuts to one or two times, it may cut rates two or more times later this year. The reason is that the cooling rate of inflation is quite fast.
Brian Jacobsen, Chief Economist of Annex Wealth Management
This policy statement is much milder than previous statements. Today's good CPI data is helpful. Dot charts may be more important than policy statements. The Federal Reserve has reduced its interest rate cuts from three to one, but they have extended the duration of the cuts until 2025. The net effect is to cancel one interest rate cut within the next 18 months, which may not have a significant impact on the overall economy.