Nothing regarding interest rates was expected from Wednesday’s meeting of the Federal Reserve (Fed) and the central bank lived up to expectations. Although, it forecast one rate cut to 5.1 percent before the end of the year.
No indication was given of when the lone rate cut may occur. However, the Fed meets four more times this year – July, September, November and December.
For now, rates remain in the 5.25 – 5.5 range. That is a 23-year high that has been in place for almost a year.
Connecting The Dots
The Fed’s projected rate cut comes from information in the central bank’s dot plot.
The dot plot is a gauge of how the top 19 policymakers in the Fed feel interest rates will move in the next couple of years. That is significant because those policymakers are the ones who decide if rates will be cut or raised.
You might think the quarterly dot plot would be a good indicator of where rates are headed. However, it is not very precise. The predictions are anonymous, so there is no accountability. Plus, a change by one or two people can throw things way out of whack.
The Fed forecast expects interest rate cuts to increase next year. A total of four rate cuts are projected. However, late last year the bank was expecting four rate cuts this year.
Slow and Steady
The Fed maintained its cautious approach to interest rates despite data released earlier in the day showing inflation slowing.
In a press conference following the meeting, Powell characterized the Fed’s approach as “conservative.” However, he sounded a hopeful tone, saying, “We welcome today’s reading and hope for more like that.”
Several central banks of other countries have recently lowered rates. However, the Fed has been reluctant to follow suit.
Powell has consistently stated that Fed decisions on rates will be based solely on data. In that regard, positive inflation information showed up earlier in the day.
CPI Unchanged
The Bureau of Labor Statistics released the May Consumer Price Index (CPI) Wednesday morning which was unchanged from April. The CPI surveys the cost of a variety of goods and services as a way of measuring inflation.
Housing and gasoline were the biggest movers in May’s report. Gasoline dropped 3.6 percent while the index for shelter rose .4 percent. Meanwhile, the cost of food at home index was unchanged from April. Overall, the food index was up .1 percent led by a .4 percent increase in the food away from home index.
World Economy Stabilizing
The CPI was not the only indication of slowing inflation.
Tuesday, the World Bank issued a report that the global economy seems to be stabilizing. Economists at the bank expect global economic growth to hold at 2.6 percent for 2024. That rate anticipated to pick up slightly over the next two years to 2.7 percent. That is well below the 3.1 percent seen over the decade before the pandemic.
“Advanced economies are doing well in the sense that monetary policy, we are expecting gradual ease, and that will help, especially next year,” said Ayhan Kose, World Bank Deputy Chief Economist.
Positive Consumer Expectations
Even without the Fed making a move, consumers are more upbeat about inflation in the short term, according to a report from the New York Fed.
The May Survey of Consumer Expectations, released June 10, found that respondents anticipate inflation dropping over the next year to 3.2 percent. That is a .1 percent drop from the previous month’s survey.
The positive outlook on inflation may account for respondents’ rosy view of their financial futures. Around 78 percent of those surveyed expect to be financially stable or better off over the next year. That is the highest percentage since 2021.
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