Raises longer-run rate projection (higher for longer), and projections for inflation and GDP in 2024.
By Wolf Richter for WOLF STREET.
FOMC members voted unanimously today to maintain the Fed’s five policy rates, with the top of its policy rates at 5.50%, as had been uniformly telegraphed starting with the January meeting and followed by speeches, interviews, and panel discussions by Fed governors amid the Fed’s continued efforts to douse with cold water the rate-cut mania that had broken out in early November. The last rate hike occurred at its meeting in July.
Today, the Fed kept its policy rates at:
Federal funds rate target range between 5.25% and 5.5%.
Interest it pays the banks on reserves: 5.4%.
Interest it pays on overnight Reverse Repos (RRPs): 5.3%.
Interest it charges on overnight Repos: 5.5%.
Primary credit rate: 5.5% (banks’ costs to borrow at the “Discount Window”).
The “dot plot”: Seven participants dialed back their rate cut expectations.
In its updated “Summary of Economic Projections” (SEP) today, which includes the “dot plot,” the median projection for the federal funds rate at the end of 2024 was 4.625%, or 4.75% top of range, so three 25-basis-point cuts by year end.
The 2-cut scenario was just one participant short: But the composition changed, with 9 participants expecting two or fewer cuts, and 9 expecting three cuts, and only 1 expecting four cuts. In other words, the two-cut scenario was short only one participant.
The 19 participants each projected their own idea where they see the Fed’s rate by the end of 2024. These are their projected mid-points of the target range by the end of 2024 (today’s mid-point is 5.375%). As you can see, seven participants dialed back their rate cut expectations:
2 see 5.375% (no cuts), same as in Dec.2 see 5.125% (1 cut), up from 1 in Dec.5 see 4.875% (2 cuts), same as in Dec.9 see 4.625% (3 cuts), up from 6 in dec. = median1 see 4.375% (4 cuts) down from 4 in Dec.0 see 5 or more cuts, down from 1 in Dec.
The median projection for the longer-run federal funds rate rose to 2.6%, from 2.5% at the December SEP, further increasing the higher for longer theme.
The median projection for GDP growth for 2024 was hiked to 2.1% (from 1.4% in December).
The median projection for “core PCE” inflation by the end of 2024 was hiked to 2.6% (from 2.4% in December).
The Statement:
At the January meeting, the Fed had added entirely new language to its statement, explicitly pushing back against the markets’ rate-cut mania and end-of-QT mania. At today’s meeting, it repeated that language:
Push-back on rate cut mania – kept the language from the last push-back statement: “In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.” And: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
Push-back on QT slow-down mania: “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.”
QT continues, with the Treasury roll-off capped at $60 billion per month, and the MBS roll-off capped at $35 billion per month as per plan, the Implementation Notes confirmed today. The Fed has already shed $1.43 trillion in assets since it started QT in July 2022.
Here’s what Powell said at the press conference about Slowing the Pace of QT: “By Going Slower, You Can Get Farther”.
Here is the whole statement:
Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.
