Fed Holds Policy Rate Steady, Still Expects Three Rate Cuts This Year

Rates decline after Fed reaffirms projection for three 2024 rate cuts. The Fed expectedly held the Fed Funds target range at 5.25%-5.50% for the fifth consecutive meeting today. Their first dot plot of 2024 maintained the forecast for three rate cuts this calendar year, which pushed rates lower as the Fed avoided a more hawkish 2024 stance. The swap curve bull steepened as short-term rates dropped ~8bps while the long end was little changed. In agreement with the FOMC’s median forecast, futures now fully price in three 25bp rate cuts by the end of 2024 and still suggest June as the likely starting point for accommodation. The S&P 500 and NASDAQ rallied following the release of the FOMC’s dot plot and statement, closing more than 1% higher on the day.

FOMC outlooks remain steady. The Fed stayed the course today and generally remained consistent with their recent commentary. Chair Powell said that the first rate cut would likely be “at some point this year” while holding back on specific timing. While the dot plot outlook for 2024 was unchanged, the median estimate for 2025 was revised up from 3.6% to 3.9%, and 2026 was bumped up from 2.9% to 3.1%. The FOMC statement remained constant, save for a slight change to the language about labor markets, now reading, “job gains have remained strong.”

UK inflation falls to its lowest level in over 2 years. As the BOE mulls the path forward for rates ahead of tomorrow’s policy meeting, the latest inflation data revealed progress. Annualized inflation figures were the lowest in years, as headline and core CPI both slowed 0.6% to +3.4% and +4.5%, respectively. Despite the decline in price growth, CPI remains the highest amongst Group of Seven economies. A 25bp rate cut is not fully priced in by futures markets until August, and a pause is effectively guaranteed at tomorrow’s meeting.