Fed Leaves Rates Unchanged; Raises PCE Inflation Forecasts For 2024

On June 12, 2024, Federal Reserve released FOMC Statement. Fed decided to maintain the target range for the federal funds rate at 5.25 – 5.5%, in line witht analyst expectations.

Fed noted that economic activity conitnued to expand at a solid pace, while the unemployment rate remained low.

Fed does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation was moving towards its 2% target.

Fed has also released its economic projections. The forecasts for GDP growth and Unemployment Rate remained unchanged at 2.1% and 4.0% for 2024.

PCE Inflation forecast was raised from 2.4% to 2.6%, while Core PCE inflation forecast was increased from 2.6% to 2.8% for this year.

The federal funds rate projection was increased from 4.6% to 5.1%. The Federal funds rate projection for 2025 was also increased from 3.9% to 4.1%, while the forecast for 2026 remained unchanged at 3.1%.

Interestingly, Fed has also changed its longer run forecast for the federal funds rate, which was raised from 2.6% to 2.8%. The Fed’s estimate of a neutral rate has moved higher, which may have a material impact on market dynamics.