Last week the biggest news item was the meeting of the Federal Reserve FOMC and Chairman Powell’s press conference. In a widely expected move, the Fed held rates steady, but the updated economic projections did hold some interesting points.
The table above is from the updated economic projects and include the projections from the prior release in December. Here are the highlights:
The Fed now projects a notable increase in GDP versus their December release for 2024. In his press conference, Chairman Powell also noted recent economic data shows solid growth. Also for 2025 and 2026, the Fed has raised their forecasted GDP growth numbers. Next, many expect their anticipated inflation rate (Core PCE) to be higher in 2024 (vs. the December projection), but beyond 2024 they did not make any changes in their inflation expectations. While they still projected three rate cuts in 2024, they projected fewer rate cuts in 2025 and 2026. The CME FedWatch tool projects rate cuts to begin in June.
In his press conference, Chairman Powell reiterated how the FOMC goes meeting-by-meeting and looks at the data to see what changes to make. Chairman Powell also reiterated the Fed’s commitment to a 2% inflation rate. Chairman Powell also reiterated that the Fed wants to see sustainable downward movements in inflation, noting that they look at different parts of inflation for indicators of “sustainable downward movements.” We take this to mean that they want to see a decline in the services inflation rate (particularly housing) from its above 4% to something more aligned with 2%. Chairman Powell also noted that while they believe the recent upticks in inflation will turn around, it is something they are watching closely.
Existing home sales were also released last week with the number of homes sold increasing sharply and the median price also increasing—something we have not since mid-last year.
Also, housing starts increased sharply last month.
While ongoing signs of GDP growth are welcome, we conclude inflation will remain sticky, giving the Fed ample justification to hold rates steady and not be forced into cutting rates. Given current trends in inflation, June rate cuts may not occur.
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