The Federal Reserve left interest rates unchanged on Wednesday and forecast that it will deliver fewer cuts in 2024 than it previously thought, even as officials observed "modest further progress" on inflation amid an encouraging set of data. The median estimate from Fed policymakers called for just one rate cut this year, down from a March forecast for three cuts. The Fed also raised its inflation forecasts slightly for this year and 2025, but it acknowledged that inflation has cooled of late after a lack of progress in the first quarter. The Fed's announcement came just hours after the release of inflation figures showing a deceleration in the consumer price index, which was up 3.3% year-over-year in May after rising 3.4% a month earlier. Excluding food and energy, the increase in core CPI slowed to 3.4% from 3.6%. Inflation also looked soft at the wholesale level. The producer price index edged lower month-to-month, and its annual rise held steady at 3.2%, according to data on Thursday.
Fed Chair Jay Powell emphasized in a press conference that rate cuts would not be appropriate until officials are convinced that inflation is approaching their 2% target, or if the labor market unexpectedly deteriorates. "We are well aware of the two-sided risks" of moving too fast or slow to ease borrowing costs, said Powell, who also acknowledged that recent payroll reports may have overstated the strength of the labor market. In a new video, PGIM Fixed Income's Chief US Economist Tom Porcelli highlights key takeaways from the Fed meeting.
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