FOMC Meeting Notes. The Federal Reserve Open Market Committee left its target for interest rates unchanged at a range of 5.25 – 5.50%, the eleventh month of unchanged overnight rates.

The Federal Reserve Open Market Committee left its target for interest rates unchanged at a range of 5.25 – 5.50%, the eleventh month of unchanged overnight rates. During that period, inflation has been broadly decelerating, though even with this morning’s constructive CPI data, we have yet to meet the Fed’s threshold of “substantial additional progress” necessary before embarking on long-hoped rate cuts. September is now the first likely start for a mid-course correction lasting 2-3 quarters, but it will still take another pair of moderate inflation prints to make it happen.

Data since the FOMC met in early May has been mixed in terms of growth and slightly constructive in terms of inflation. The Atlanta Fed’s GDPNow tracker estimates 2Q 2024 growth at a swift 3.1% after a 1Q slowdown. While consumer spending, powered by income gains, has been consistently strong, other data (especially exports, but also housing and manufacturing) have been all over the map. Remarkably, job growth has proven resistant to gravity, and so long as that remains the case, it is hard to see significant economic downside. Inflation remains vexing. After big drops in 4Q 2023 and upside surprises in 1Q 2024, we finally seem to be reaching some middle ground. May core CPI released just this morning has the 3- month annualized core CPI at +3.3%, the lowest pace of inflation since January. Adjusting for the CPI/PCE difference, that is equivalent to a 2.5% core PCE, above the Fed’s 2% target, but moving in the right direction. Just as importantly, for our purposes, inflation volatility has come down. All else equal, lower volatility should mean greater confidence that any given inflation result is more reflective of long-term trends. In the 1995 “mid-course correction,” the Fed began cutting rates while the 3-month annualized core PCE was dropping through 2.6%. There are many echoes between those cuts and today’s prospective ones.

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Guy LeBas

Director, Custom Fixed Income Solutions

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