Macro Flash Report

FOMC Rate Decision

The FOMC maintained rates at 5.25-5.5% for the seventh consecutive meeting. The updated dot plot now forecasts one rate cut in 2024, two fewer than previously anticipated in March. These indicate a cautious approach despite positive inflation data released this morning, highlighting a hawkish stance. However, projections for 2025 suggest a shift towards more accommodative policy, with four cuts expected, up from the three forecasted in March.

The FOMC Rate Decision today to hold interest rates and one rate forecast comes amidst a backdrop of a stable labor market and an early sign of cooling inflation. Despite the positive inflation data, Fed officials remain cautious, emphasizing the need for a sustained trend of reduced inflation pressures before considering lowering interest rates.

Inflation:

May’s CPI data released this morning showed encouraging signs of cooling, sparking optimism among Fed officials and market participants. The Core CPI MoM increased by 0.2% from April, marking the slowest rise in seven months and below market expectations of 0.3%. On an annual basis, Core CPI YoY rose 3.4%, down from 3.6% in April and short of the forecasted 3.5% increase, reaching its lowest level in over three years. Additionally, now deemed Supercore CPI, which is CPI Services (Ex Shelter) and is highly watched by the Fed as a key indicator for where price pressure is trending, increased by just 0.2%, down from April’s 0.4%. The cooling inflation data triggered a market rally. Stocks rose, and Treasury yields dropped, as market expectations priced in two rate cuts by the end of 2024 ahead of the meeting.