FOMC Preview: No Change to Fed Funds Rate

Most analysts expect there will be no change to the federal funds rate at the meeting this week keeping the target range at 5‑1/4 to 5-1/2 percent.   Currently market participants expect the next Fed move to be a 25 bp cut announced at the November FOMC meeting.  The market is almost pricing in a 2nd cut in December. 

 
From BofA:

The bottom line is that the stronger-than-expected May employment report remains consistent with our monetary policy outlook for staying on hold. This report showed solid payroll gains with positive implications for consumer spending. We expect the Fed to stay on hold for now and start a gradual cutting cycle in December which will depend on a moderation in the inflation data. The economy may be cooling, but it is not cool.

Projections will be released at this meeting. For review, here are the March projections. 

The BEA's second estimate for Q1 GDP showed real growth at 1.3% annualized.  Early estimates for Q2 GDP are around 2% to 3% annualized, and the FOMC projections for year-over-year growth in Q4 2024 are close.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2024	2025	2026
Mar 2024	2.0 to 2.4	1.9 to 2.3	1.8 to 2.1
Dec 2023	1.2 to 1.7	1.5 to 2.0	1.8 to 2.0

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 4.0% in April, at the FOMC projections for Q4.  This might be revised up slightly.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2024	2025	2026
Mar 2024	3.9 to 4.1	3.9 to 4.2	3.9 to 4.3
Dec 2023	4.0 to 4.2	4.0 to 4.2	3.9 to 4.3

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of April 2024, PCE inflation increased 2.7 percent year-over-year (YoY).  This is at the high end of the FOMC projections for Q4, and inflation will likely be revised down slightly.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2024	2025	2026
Mar 2024	2.3 to 2.7	2.1 to 2.2	2.0 to 2.1
Dec 2023	2.2 to 2.5	2.0 to 2.2	2.0

PCE core inflation increased 2.8 percent YoY in April.  This is also at the high end of the FOMC projections for Q4 2024.  However, housing is still distorting the measures of inflation, and the shelter index will continue to decline (monetary policy can't impact what happened in the past), and it is likely projections for core PCE will be revised down slightly.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2024	2025	2026
Mar 2024	2.5 to 2.8	2.1 to 2.3	2.0 to 2.1
Dec 2023	2.4 to 2.7	2.0 to 2.2	2.0 to 2.1