The United States Federal Reserve issued its FOMC (Federal Open Market Committee) statement at 2:00 PM EDT on the 1st of May 2024, followed by a press conference to discuss the latest economic data trends and monetary policy. Here are some key takeaways:
- The Federal Funds target rate has remained unchanged at 5.25% to 5.50%.
- Inflation is still higher than the 2% target.
- Quantitative Tightening (QT) will continue but at a slower pace from June.
- The Committee does not expect it will be appropriate to reduce interest rates until it has gained greater confidence that inflation is moving sustainably towards 2 percent.
The FX market response was relatively muted; the GBPUSD inter-bank exchange rate rose from 1.2480 to a high of 1.2550 during the release and has since returned those gains. The market expectations for interest rate cuts in the US and the UK will be the main driver of the exchange rate for the near future. The central bank’s decision to keep rates at their current level was anticipated by the market which explains the lack of a movement in a specific direction.
The primary measure of inflation in the USA overall has not trended down since June, but when you dig deeper into the data, there are some categories trending downwards such as new vehicle prices, while other categories like energy are trending higher. Core PCE inflation, which is the central bank’s preferred measure of inflation excluding food and fuel inflation, is at 2.8%, but the rate of decline has slowed since December 2023. The committee will continue to reduce its asset holdings of treasuries, agency debt, and mortgage-backed securities, which will help to bring inflation down; however, in June, the pace of reduction will be slowed by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion per month.
As per the CME “Target Rate Probabilities” data, the market is now pricing in a 31% chance that the federal funds target rate will be cut to 4.75% to 5.00% by December 2024 and a 38.3% chance that the rate will still be at its current level of 5.25% to 5.50% by December 2024. If interest rates remain at their current levels and there is no sign of a sustainable decline in the inflation data over the next few months, there is a possibility that rates will need to remain elevated for longer.
The article above is for informational purposes only and should not be considered investment advice. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions. The information provided is based on current market conditions and political events, which are subject to change and may impact financial markets. The author and publisher are not responsible for any losses or damages that may result from the use of this information.
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