To no one’s surprise, the FOMC held its target rate range constant at 5.25%–5.5% and continued the process of letting its securities run off as they mature. In support of that decision, the committee’s statement cited data suggesting that job gains remain strong, the economy is expanding at a solid pace, and inflation has moderated but remains above its target.
In his press conference Chairman Powell began his prepared statement by declaring that the committee remains committed to its dual objectives of price stability and maximum employment and is firmly committed to getting inflation down to its 2% goal. Subsequent questions focused mainly on what would give the committee greater confidence that inflation is on a path to 2%. Powell really didn’t provide the kind of specifics that the questioners were seeking. He did, however, state in previous press conferences that the path to 2% might be bumpy and the past two months of inflation data were just such bumps. So, more data and more time would be necessary.
What was a bit of a surprise coming out of this meeting were the new SEPs and the fact that the projections changed in several ways. Real GDP growth was revised up for all four projection years and significantly for 2024, from 1.4% in 2024 and by 0.1 or 0.2 percentage points in 2025 and 2026. Unemployment for 2024 was revised down by 0.1 percentage point in both 2024 and 2026. Finally, PCE inflation was constant at 2.4% by the end of 2024 but revised up for 2025 and unchanged at 2% by 2026. Finally, the median federal funds rate held steady at 4.6 % for 2024 but was revised up in both 2025 and 2026. This was despite the fact that the SEPs still included three rate cuts in 2024.
Moreover, more participants coalesced on that view of policy. The following dot chart compares participants’ views of the appropriate policy rate for 2024 that were contained in the December and March SEPs.
Six participants thought three cuts would be appropriate, whereas this number increased to nine participants in March. Moreover, four of the five participants who thought rates should be cut even more than three times changed their view and moved to three cuts in 2024. So there appears to have been a growing consensus on what the rate at the end of December should be, but Chairman Powell made it clear that the path is as yet uncertain.
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