Fed leaves rates unchanged, sees only one 2024 cut, despite inflation progress

• The Federal Reserve held interest rates steady on Wednesday and pushed the start of rate cuts to as late as December.
• With growth and unemployment lodged at levels better than the U.S. central bank considers sustainable in the long run, Fed Chair Jerome Powell said policymakers were content to leave rates unchanged until the economy signals that something else is needed. These signals include a more convincing decline in price pressures or a jump in the unemployment rate.
• So far, Powell noted in a press conference after the end of a two-day policy meeting, inflation had fallen without a major blow to the economy, and there was no reason to think that can't go on.
• The result is the Fed expecting a slow decline in inflation back towards its 2% target, with their preferred inflation measure - the personal consumption expenditures (PCE) index - virtually unchanged at the end of this year from its current level and the number of rate cuts held to a single 25 basis point reduction. However, rate cuts are projected to gather pace next year, with Powell deferring on the timing.
• Inflation data published hours before the policy statement release and updated projections showed the consumer price index (CPI) was flat month-over-month (MoM) in May, causing some analysts to argue the latest projections were already "stale."
• Investors in contracts tied to the Fed's benchmark interest rate largely kept bets intact that the central bank would approve quarter-percentage-point reductions in September and December.
• Under the current projections, absent a surprise in upcoming inflation or jobs data, the cuts would likely not begin until December, moving the Fed's decision out of the Nov. 5 U.S. presidential election cycle.

(Source: Reuters)