The Federal Reserve (Fed) left its short-term target for policy rates unchanged at yesterday’s meeting as expected. Slower improvement in inflation data over the last several months led the Fed to reduce the number of rate cuts it expects to make in the coming months.  The Fed’s “Dot Plot” revealed a 5.1% projected policy rate by the end of 2024, up from a 4.6% estimate made at their March meeting.

Current Conditions – The economy has continued to expand at a solid pace since the Fed’s last meeting with strong job gains, as confirmed by last week’s gain in non-farm payrolls.  The Fed’s statement was modified to reflect modest progress toward the 2% inflation target.    

Forward Guidance – The Fed does not expect to cut rates until it has further evidence of a sustained move in inflation toward 2%.  Yesterday’s Consumer Price Index (CPI) data was well received, but the Committee raised its expectation for the favored core Personal Consumption Expenditure (PCE) inflation to 2.8% through the end of 2024.

Policy/Market Reaction – Yesterday’s move was unanimously approved by the Committee.  Markets had a positive tone heading into the release thanks to better-than-expected inflation data.  The Fed’s release, while slightly more hawkish than expectations, did little to disrupt sentiment.  Market expectations for a cut in September fell slightly following the Fed’s release. 

Gary Pzegeo, CFA  joined the firm in 2007 as head of fixed income, focusing on portfolio management, trading, policy formulation and client service.