MNI: FOMC Sees One '24 Cut, Modest Further Inflation Progress

Federal Reserve officials Wednesday held interest rates steady for a seventh meeting and signaled an expectation to cut them just once this year, citing “modest further progress” on inflation while revising up their forecasts for year-end PCE inflation.

The Fed held official borrowing costs at a 23-year high of 5.25-5.5%, and its Summary of Economic projections showed a median of just a single rate reduction for 2024, down from three at the March SEP. Seven officials see one cut this year, eight see two cuts, while four see none at all.

“The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” the FOMC repeated in its policy statement.

Officials also revised up the median longer run dot, seen as a proxy for the neutral rate of interest, to 2.8% from 2.6%, signaling the prospect of higher rates over a longer horizon.

The decision to keep rates steady again comes on the heels of better-than-expected May CPI data, which revived hopes that inflation is steadily coming down to the Fed's 2% target.

MODEST FURTHER PROGRESS

"In recent months, there has been modest further progress toward the committee’s 2% inflation objective," the Fed said in its post-meeting statement.

The FOMC revised higher its median view for year-end PCE and core inflation by 0.2 percentage point to 2.6% and 2.8% respectively.

U.S. consumer prices rose well less than forecast last month, with headline CPI effectively flat over the month while core rose just 0.163%. That left CPI up 3.3% on the year with core rising 3.4%, still above the Fed's target but a sign that progress has resumed after plateauing in the first quarter.

Employment data last week showed the economy added a stronger-than-expected 272,000 jobs in May. Fed Chair Jerome Powell will be asked in his post-meeting press conference how concerned he is about ongoing labor market strength potentially feeding additional inflation pressures.

Policymakers think the unemployment rate will hover around 4% for the remainder of the year and peak at 4.2% next year.