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.   It is likely the FOMC will hint at a possible September rate cut.  

Currently market participants expect the next Fed move to be a 25 bp cut announced at the September FOMC meeting.  Market participants are also pricing in a 2nd rate cut at the November meeting, and a 3rd rate cut in December.

From Goldman Sachs:

Encouraging inflation news and a further rise in the unemployment rate have pushed Fed officials closer to cutting. The FOMC is set to hold steady next week but is likely to revise its statement to hint that a cut at the following meeting in September has become more likely.

Specifically, we expect the FOMC to revise its statement to say that the unemployment rate has “risen slightly but remains low,” that there has been “further progress” (dropping “modest”) toward the 2% inflation goal, that the risks to the two sides of the mandate “are in” (not “have moved toward”) better balance, and—most importantly—that it now needs only “somewhat” greater confidence in the inflation outlook in order to start lowering interest rates.
emphasis added

From BofA:

The June personal income and outlays report was another tick of the box. Inflation is back on track towards the 2% target even if base effects will lift the y/y rate in 2H. Therefore, the likelihood a rate cuts continues to increase. That said, solid spending and strong GDP growth means the Fed can be patient and await more data. We remain comfortable with our forecast that cuts will start in December, but upcoming inflation and employment data could tip the scale to an earlier cut. Focus now shifts to July data.

Projections will NOT be released at this meeting. For review, here are the June projections. 

Since the last projections were released, economic growth has been close to expectations, the unemployment rate is slightly higher, and inflation lower than expected (although there are some "base effects" that might push PCE inflation up a little later this year).  

The BEA's advance estimate for Q2 GDP showed real growth at 2.8% annualized, following 1.4% annualized real growth in Q1. That puts real growth in the first half at 2.1%; at the midpoint of the June FOMC projections.  

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2024	2025	2026
June 2024	1.9 to 2.3	1.8 to 2.2	1.8 to 2.1
Mar 2024	2.0 to 2.4	1.9 to 2.3	1.8 to 2.1

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 4.1% in June.  This is close to the high end of the June projections.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2024	2025	2026
June 2024	3.9 to 4.2	3.9 to 4.3	3.9 to 4.3
Mar 2024	3.9 to 4.1	3.9 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 June 2024, PCE inflation increased 2.5 percent year-over-year (YoY). This is at the low end of the June projections.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2024	2025	2026
June 2024	2.5 to 2.9	2.2 to 2.4	2.0 to 2.1
Mar 2024	2.3 to 2.7	2.1 to 2.2	2.0 to 2.1

PCE core inflation increased 2.6 percent YoY in June. This is lower than the June FOMC projections for Q4.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2024	2025	2026
June 2024	2.8 to 3.0	2.3 to 2.4	2.0 to 2.1
Mar 2024	2.5 to 2.8	2.1 to 2.3	2.0 to 2.1