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Fed Holds Steady, Cuts Back on Expected Cuts

This is a syndicated repost published with the permission of Statista | Infographics. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

As has been widely expected after the latest economic data, the Fed decided to keep its policy rate steady for the seventh consecutive time at its June meeting, while also dialing back expectations for rate cuts in 2024. Following a two-day meeting of the Federal Open Market Committee (FOMC), Fed chairman Jerome Powell announced that the target range for the federal funds rate would be kept at 5.25 to 5.50 percent, while also acknowledging the “considerable progress” that has been made over the past two years.

Staying true to its recent flip-flop course in terms of rate cut expectations, the Fed once again adjusted those expectations downwards, with FOMC members now forecasting just one rate cut this year, down from three that had been predicted at the penultimate policy meeting in March. The latest median projection for the upper limit of the appropriate target rate range at the end of 2024 is 5.25, up from 4.75 in March and back to where it was in September 2023, when the Fed had warned that rates could remained higher for longer.

“In the labor market, supply and demand conditions have come into better balance,” Powell said in a press conference on Wednesday, as recent data suggested that it has has returned to its pre-pandemic state of “relatively tight but not overheated”. With respect to possible rate cuts, Powell remained cautious, however, stating that this year’s inflation data has not bolstered the committee’s confidence that inflation is moving sustainably toward the Fed’s 2 percent goal. “We know that reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment,” Powell summed up the balancing act that he and his colleagues are facing.

This chart shows the U.S. federal funds target rate since 2007.

US federal funds target rate

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