The US Federal Reserve announced on Wednesday, after a two-day Fed meeting June 2024, that it will keep the benchmark interest rates unchanged at 5.25% – 5.50%. This unchanged benchmark interest rate is happening for the seventh consecutive meeting, matching Wall Street estimates.
Fed meeting June 2024
The June 2024 Fed meeting finished on June 12. The Fed officials unanimously voted to keep the policy rate at a two-decade high. Based on recent economic data, the Fed forecasts only one rate cut in 2024. The Fed has increased its core inflation forecast for 2024 and maintained GDP projections at previous levels.
The Federal Open Market Committee (FOMC) has reviewed US economic conditions to set monetary policy. There has been increased attention on the US inflation data, with expectations that consumer price inflation slightly cooled. An opinion poll by Reuters suggests economists expect inflation to drop to 0.1% from 0.3% last month.
In the Fed meeting, the US Fed said there has been progress towards its 2% inflation target and now expects only one rate cut in 2024. This is down from three cuts projected in March. The Fed’s dot plot shows the median year-end federal funds rate projection has increased to 5.13%, suggesting only one 0.25 percentage point cut before the year ends.
The US central bank also said it will slow down how quickly it reduces its balance sheet, starting June 1 in the June Fed meeting. It will now allow only $25 billion in Treasury bonds to be removed each month, down from the current pace of $60 billion. It was seen that mortgage-backed securities will be reduced by up to $35 billion monthly.
In the June Fed meeting, Powell said that the job market is strong; however, he believes it is slowly slowing down. He said that if there is an unexpected weakening, the Fed might need to take action. Policymakers anticipate that both economic growth and inflation will continue to slow down in 2025.
Outlook on the Economy
US consumer prices were unchanged in May compared to April, reducing the annual inflation rate to 3.3% from 3.4%. The core consumer price index (CPI), excluding food and energy, rose 3.4% year-over-year, the slowest increase in over three years.
Since increasing the policy rate by 5.25 percentage points starting in March 2022, the Fed has kept rates steady since July 2023 to control high inflation and aim for a 2% target.
Analysts predict the US central bank will not change its policy rate in the July meeting. However, a strong job report has increased concerns about persistent inflation. As a result, the Fed is maintaining a cautious approach, according to HSBC.
While the policy rate is expected to stay steady, attention will be paid to whether the committee adjusts its forecasts for potential rate cuts later this year.
Kieran Williams, head of Asia FX at InTouch Capital Markets at the June Fed meeting, told Reuters that the consensus is likely to downgrade the number of rate cuts in 2024 from three to two. Additionally, a Reuters report noted that the odds of the Fed announcing a rate cut in September have decreased from 78% to 56% over the past week.
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