FOMC & CPI Update
Following a good inflation report last week, the FOMC voted unanimously to keep the federal funds rate unchanged at the current 5.25% to 5.5% target range.
FEDERAL OPEN MARKET COMMITTEE
The Federal Open Market Committee (FOMC) voted unanimously to keep the federal funds rate unchanged at the 5.25% to 5.5% target range. FOMC members do not anticipate lowering the fed funds rate until they see sustainable evidence that inflation is moving to the 2% target level. Here is the complete FOMC statement:
The June FOMC meeting was accompanied by an updated Summary of Economic Projections (SEP). The table below shows the central tendency of the current and previous (March) projections for real GDP, unemployment, headline PCE inflation, core-PCE inflation, and the federal funds rate. The central tendency omits the three highest and three lowest projections for each variable, and the values are provided for December 2024, 2025, and 2026. As you can see, FOMC members forecast real GDP growth within a range of 1.9% to 2.3% in 2024, unemployment up slightly to 4.0% to 4.1%, and both headline and core PCE inflation to finish 2024 just above the Fed’s 2% inflation target, ending 2024 in the 2.5% to 3% range. FOMC members revised their fed funds rate forecast, dialing back the total number of rate cuts this year to just one or two by December 2024. Four FOMC meetings remain this year in July, September, November, and December.
The Fed’s dot plot shows each FOMC member’s federal funds rate forecast for December 2024, 2025, and 2026 and their long-term expectation. Nearly all FOMC members expect rate cuts over the next eighteen months. Over the next six months, 15 of 19 FOMC members anticipate one or two rate cuts. The remaining four members anticipate no change in rates this year. Looking ahead to December 2025, all but one expect multiple rate cuts, with most members forecasting a fed funds target rate range between 4.0% and 4.5%.
Following the June meeting, Fed Chair Powell hosted a press conference, which you can watch here or read the transcript here.
The next meeting is scheduled for July 30th and 31st. We do not anticipate any monetary policy change at the July FOMC meeting.
Fed Chair Powell is scheduled to deliver his semi-annual Monetary Policy Report to Congress on July 9th.
CONSUMER PRICE INDEX
The May consumer price index (CPI) inflation report showed the inflation index rose 3.3% year-over-year through May 2024. The core CPI, which excludes the volatile food and energy components, rose 3.4%. The 3.4% core CPI rate was the lowest in more than three years (April 2021). In the above chart, the year-over-year core CPI rate (black line) continues to decelerate, as it has done over the last two years.
More than offsetting a decline in gasoline, the index for shelter rose in May, up 0.4 percent for the fourth consecutive month. The index for food increased 0.1 percent in May. The food away from home index rose 0.4 percent over the month, while the food at home index was unchanged. The energy index fell 2.0 percent over the month, led by a 3.6-percent decrease in the gasoline index. Source: BLS.gov
Headline CPI:
+0.0% seasonally adjusted in May, following +0.3% in April
+3.3% year-over-year
Core CPI: (excludes food and energy)
+0.2% seasonally adjusted in May, following +0.3% in April
+3.4% year-over-year