The FOMC announced Wednesday that it will maintain the target range for the federal funds rate between 5-1/4 and 5-1/2 percent, based on strong U.S. economic activity, despite positive signs in inflation.
“Recent indicators suggest that economic activity has continued to grow at a solid pace. Job gains have remained strong and the unemployment rate has stayed low. Inflation has decreased over the past year but remains elevated,” says the Fed’s statement.
While the Fed Committee was meeting, it was revealed that the consumer price index grew 3.3 percent compared to the same month in 2023, marking the smallest increase since October.
However, the monetary authority insisted that “in recent months, there has been modest progress toward the FOMC’s 2% inflation target.”
The Committee considers that the risks to achieving its employment and inflation goals have moved toward a better balance over the past year. However, economic outlooks remain uncertain, and the Committee remains highly attentive to inflation risks, the statement adds.
In support of its objectives, the FOMC decided to reduce its holdings of Treasury securities and agency debt and mortgage-backed securities.
Additionally, the Committee does not expect it to be appropriate to reduce the target range until there is greater confidence that inflation is moving sustainably toward 2 percent.
Expert Forecasts
Before the Fed’s resolution, experts from various management firms opined on the measures the monetary authority would take towards the end of the year.
For example, Blerina Uruci, Chief U.S. Economist at T. Rowe Price, said she expects the Fed to show only two cuts for 2024.
“This is a very consensual forecast, as most FOMC members, including (Jerome) Powell, want the September meeting to be optional. If the economy continues to hold up and inflation remains stable, the market can discount the price of September as data evolves,” she commented.
However, the expert warned that it is expected to be a very tight decision for many participants, given the resilience of the labor market, and for this reason, she believes the risks tilt in an aggressive direction, meaning there could be only one cut this year.
On the other hand, Charlotte Daughtrey, Equity Investment Specialist at Federated Hermes Limited, stated that U.S. inflation was well received by the market. However, Daughtrey warned that this would not be a strong signal to extrapolate this single data point and “would expect the Fed to continue acting cautiously, with the prospect of limited rate cuts for the remainder of the year.”
