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Market Update

Fed continues to hold policy rate; market welcomes positive inflation print

June 12, 2024


On Wednesday, June 12, 2024, the Federal Open Market Committee (FOMC) voted unanimously to hold the federal funds rate at a target range of 5.25–5.50%. Today's decision represents the seventh straight FOMC meeting with no change in the policy rate, with the last rate hike coming out of the July 2023 meeting. The FOMC statement was mostly unchanged from the prior meeting, other than the addition of "modest further progress" on inflation. Today's meeting comes on the heels of an encouraging CPI print this morning, showing no month-over-month increase in the index and a year-over-year decline from 3.40% in April to 3.30% in May. Pundits described the FOMC statement and Fed dot plot as hawkish, but perceived Powell's press conference as more neutral. Powell highlighted that the economy faces a balance of risks — cutting rates too soon may reignite inflation, while holding rates for too long could send the economy into a recession.

Impact on rates

The market reacted positively to this morning’s CPI release as rates across the front end and belly (three-to-seven years) of the Treasury curve declined by 10 to 16 basis points. Post Powell presser, rates have settled slightly, down only five to 11 basis points.

Source: Chatham Financial

Despite the Fed signaling only one rate cut this year, the market is now pricing in approximately 45 basis points of cuts by the end of the year, with the first cut fully priced in by the November 7 FOMC meeting.

The Committee also raised their median forecast for Personal Consumption Expenditures (PCE), the Fed’s preferred inflation gauge, in 2024. Powell noted that there are “very low readings” of PCE from June to December of 2023 that will be rolling off the previous 12 months of data, which could lead to slightly higher readings the rest of the year. Powell described the new PCE forecast as conservative.

Moving forward

This meeting signaled the feeling that progress has been made and the Fed is growing more confident that inflation will make its way back to the 2.00% target. Today’s CPI print was welcome news to both the market and the Fed. Many economists have stated that a large increase in the unemployment rate would be enough to get inflation back down to target. However, the Fed projects that the unemployment rate will not increase by the end of the year. It remains uncertain whether 2024 will be the year of a soft landing.

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