While the FOMC is likely to hold rates through the summer, market focus at June's meeting will be on whether September is a "live" for a cut.
EXECUTIVE SUMMARY:
- The FOMC will ensure a full year of the Fed funds rate remaining at 5.25-5.50% when it holds steady at the June 11-12 meeting, but focus remains firmly on what they signal for potential easing later this year.
- The new Dot Plot is likely to show a shift in the Fed funds median to 2 cuts in 2024, versus 3 in the prior two editions, alongside a nudge higher in the inflation forecasts. There are increasing risks of a shift to just 1 cut after May's strong payroll gains, particularly if next Wednesday’s CPI data comes in on the strong side.
- But most FOMC members are likely to retain optimism that rates can be cut twice by year-end, especially given recent indications that monetary tightening may finally be helping slow economic activity with a long lag.
- While Powell may well rule out July’s meeting for a cut, we think most FOMC participants will regard the September 18th decision as “live” given the large sequence of data in the interim. That would of course depend on CPI data cooperating sequentially, beginning with May’s report backing up April’s arguably “confidence”-building data.
Note to readers: MNI’s separate preview of sell-side analyst summaries to follow on Monday June 10
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