In line with almost unanimous market expectations, the Federal Reserve today kept the Fed funds target range unchanged at 5.25 - 5.50%. The press release continues to describe inflation as elevated, but there is one significant change in the language: the FOMC now "judges that the risks to achieving its employment and inflation goals are moving into better balance".
As ever, there is no clear hint as to when an easing cycle might begin. One key sentence carried over verbatim from the last press release suggests the Fed is still in no hurry: "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 percent". Given that headline CPI edged higher in February, and considering the steady upward pressure on global oil prices, it is no real surprise to find that market expectations for the extent and timing of rate cuts have been scaled back in recent weeks.
The Fed has also released an updated Summary of Economic Projections. Inflation (measured using the core PCE deflator) is not expected to fall al the way to the 2 percent target until 2025 at the earliest. However, the closely-followed "dot plot" shows that about half of the participants in the FOMC still expect three 25 basis point rate cuts by the end of the year -- though, strikingly, two participants expect no reduction at all this year, and one does not even expect a cut in 2025.
The takeaway from all this is that despite some softening in the Fed's language, a clear move toward easier policy is still some way away. A rate cut at the June FOMC meeting, which until recently was the consensus expectation, now looks like the earliest possible timeframe for any sort of easing move.
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