June 2024 Fed meeting: Fed maintains current policy rate and sees only one rate cut in 2024

Key takeaways

• During its June meeting, the Federal Reserve (Fed) unanimously voted to hold policy rates steady for the seventh consecutive time, leaving the Fed Funds Target Rate unchanged at 5.25% to 5.50%.
• The much-anticipated Summary of Economic Projections (SEP) broadly met expectations with a higher inflation forecast for 2024 and less easing this year; The median FOMC member called for one 25 basis point cut by the end of this year and four 25 basis point cuts in 2025.
• Within the Fed’s economic projections, the most significant update was the expectation that core inflation will move to 2.8% for year-end from 2.6%. This increase is likely due to strong first quarter inflation.
• Chair Powell underscored that the Fed’s decision on the direction of rates continues to be “meeting by meeting” with the “data leading the way” but noted ‘modest further’ inflation progress.
• The Federal Reserve announced at its June 2024 Federal Open Market Committee (FOMC) meeting that it would maintain the overnight federal funds rate at the current range of 5.25% to 5.5%. This decision marks the seventh consecutive meeting at which policymakers have opted to hold rates steady and keeps the federal funds rate at the highest target range in 23 years.¹
• The FOMC statement was largely unchanged. As expected, the Fed reiterated its commitment to its dual goals of lowering inflation to its 2% target and achieving maximum employment. While inflation has slowed recently and the jobs market has become more balanced this year, the uncertain economic outlook keeps the Fed “highlight attentive to inflation risks.”²
• Powell acknowledged the committee has seen “modest further” inflation progress,³ a notable shift from his prior statement indicating there was a “lack of further progress.”
• The FOMC statement reiterated the economy continues to grow at a healthy pace that is too strong to achieve its dual mandate hence the need for interest rates to be held higher for a bit longer. May’s hotter-than-expected labor market data showed parts of the economy are more resilient than most thought, while May’s inflation data was a step in the right direction.⁴
• A softer run-off pace of security holdings continues
• The Fed announced it will continue to maintain the slower rate at which it’s reducing the size of its balance sheet (announced in the May FOMC meeting).⁵ This marks another step towards a more accommodative monetary policy.
• Summary of Economic Projections
• The much-anticipated Summary of Economic Projections (SEP) broadly met expectations with a higher inflation forecast for 2024 and less easing this year.⁶ In response to this adjustment, Powell commented it “is probably going to take longer to get the confidence that we need to loosen policy” during his press conference.⁷
• A significant data point in the dot plot shows a year-end median Federal funds forecast of 5.1%, which implies that there will be just one 25 basis points (bps) cut by the end of this year and four 25 bps cuts in 2025.⁸ This is a reduction from the three cuts forecast at the March meeting.
• Economic and monetary policy outlook remain uncertain
• There’s no doubt over the past two months that economic variables are trending in the right direction for the Fed to eventually begin easing, but the Fed remains cautious about cutting rates too early.
• Chair Powell underscored that the Fed’s decision on the direction of rates continues to be made on a meeting by meeting basis with the data leading the way. This measured approach allows the committee to “carefully assess incoming data, the evolving outlook and the balance of risks.”⁹ Additional variables that the Fed will assess include financial and international developments.
• The Fed is able to extend this wait-and-see-posture as they continue to enjoy the luxury of a relatively strong labor market. The labor market has helped to keep the consumer resilient despite diminished purchasing power from higher rates. And in the press conference, Powell emphasized that “restoring price stability is essential to achieving maximum employment.”¹⁰
• Our view remains unchanged. We expect the Fed to start cutting rates by year end as inflation continues to moderate. This should allow the Fed to be patient, keeping rates higher for longer and not delivering rate cuts too soon.
• Market reaction
• U.S. equities were mostly higher in the afternoon following the Fed’s announcement on June 12, with the S&P 500 increasing by 0.9% that day. Simultaneously, the Dow Jones Industrial Average declined by 0.1% and the Nasdaq increased by 1.5%.
• Investor sentiment was slightly boosted after the FOMC meeting as it offered little surprise. Market observers and participants largely anticipated that the central  bank would keep rates at current levels given recent resilient economic data and sticky inflation data.