FOMC maintained the target range for the fed funds rate – London Business News | Londonlovesbusiness.com

Unsurprisingly, the FOMC maintained the target range for the fed funds rate at 5.25% – 5.50% at the conclusion of the June meeting, an outcome that had been fully discounted by market participants.

Whilst continuing to stress that rate cuts will remain elusive until policymakers have gained sufficient confidence that inflation is on a path to return towards the 2% target, despite today’s cooler-than-expected CPI report.

Economic commentary was broadly unchanged in the statement, with recent data having fallen broadly in line with the FOMC’s expectations.

Of most interest was the refreshed ‘dot plot’, which pointed to a median expectation for 25bp of cuts this year, a hawkish revision compared to the 75bp of cuts in 2024 that had been signalled in the previous dots, from March.

This was a somewhat more hawkish revision than had been expected, and than markets had priced prior to the decision, though should perhaps come as little surprise given the lack of significant progress on inflation thus far this year.

Nevertheless, the ‘dots’ remain finely balanced, with 8 of the 19 policymakers seeing two rate cuts this year.

Focus, naturally, now shifts to Chair Powell’s press conference, where Powell is likely to ‘stick to the script’ of recent remarks. Powell should stress that, while achieving sufficient confidence in the inflation outlook may take longer than previously thought, policy will indeed be sufficiently restrictive over time, and that it remains unlikely for the next rate move to be a hike.

All in all, this remains an FOMC that is both willing, and able, to cut rates, and will likely do so before the end of the third quarter, particularly amid more promising signs on the inflation backdrop.

This, consequently, creates a supportive backdrop for risk assets, with the path of least resistance for equities continuing to lead to the upside, and dips likely to remain relatively shallow in nature over the medium-term. The flexible, and forceful, ‘fed put‘ remains firmly in place.