Despite the recent flow of Fed-friendly data -- easing labour markets, subdued growth in key inflation indices -- markets had little expectation that this week's two-day FOMC meeting would result in a rate cut. And so it has turned out: the Fed has left the funds target range unchanged yet again, at 5.25 -- 5.50%.
If there is any surprise in today's announcement, it lies in the fact that the wording of the media release shows almost no change, though of course Chair Powell may set a slightly different tone when he stands up in front of the media shortly. Most notably, "Inflation has eased over the past year but remains somewhat elevated", and "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".
There is no new "dot plot" for analysts to pore over this time, so those hoping to predict the future must rely entirely on their ability to parse the Fed's words -- words that are not designed to make it easy. The dot plot from the June FOMC suggested an expectation of one or two rate cuts by year end. Markets seem convinced that the easing cycle will begin with the next scheduled rate announcement on September 18. Beyond that, the remaining two FOMC dates for 2024 are caught up in election season (November 6/7) and the holiday season (December 17/18). Neither of those seems ideal if the Fed wants its moves to register with the public, but it seems likely that the Fed would want to follow up on any September move with a further rate cut on at least one of those dates. Depending, of course, on the data.
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