The outcome of the June FOMC meeting was hawkish versus expectations, but couldn’t fully reverse the dovish impact of a soft May CPI report.
EXECUTIVE SUMMARY:
- The overall outcome of the June FOMC meeting was hawkish versus expectations, but couldn’t fully reverse the dovish impact of a very soft May CPI report released hours earlier.
- Markets reacted hawkishly to the new projection for the 2024 median Fed funds rate, which showed just one cut anticipated by year-end, versus three in March’s projection (and versus 2 widely expected).
- But the reaction was relatively muted, due in part to the fact that the 2025-26 path was relatively steady, implying 100bp of cuts in each of 2025 and 2026 (vs 75bp for each year in the prior edition) to the same destination of 3.1%. This was a point that Chair Powell reinforced in the post-meeting press conference.
- Powell gave little away on rate cut timing as expected, noting that while May’s CPI (+0.16% M/M core versus +0.28% consensus) in addition to April’s figure (+0.29% M/M) represented “progress” that was “building confidence”, “we don't see ourselves as having the confidence that … would warrant beginning to loosen policy at this time."
- In other words, the theme portrayed by the meeting communications is that rate cuts are being delayed, but they are still expected by year-end, and the ultimate destination hasn’t changed.
- This should keep September on the table for the first rate cut – but that will of course depend on inflation data in the interim looking more like April-May’s than the sharp rises in January-March.
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