Chart Talk: May 2nd, 2024


Upon concluding its regularly scheduledtwo-day meeting on monetary policy, the Open Market Committee of the FederalReserve (FOMC) announced that it had decided to leave its federal funds targetrate at between 5.25% and 5.50%.  Withinthe Policy Statement released concurrently, the voting members of the Fed notedthat “inflation has eased over the past year but remains elevated.  In recent months, there has been a lack offurther progress toward the Committee’s 2 percent inflation objective.”  (See chart below.)

The Committee further noted that it “does notexpect it will be appropriate to reduce the target range until it has gainedgreater confidence that inflation is moving sustainably toward 2 percent.”

In addition to normal profit-taking after suchan impressive run off its late October 2023 lows, what has been ailing thefinancial markets recently has been the notion that interest rates would stayhigher for longer and that perhaps even the potential for a rate hike would bementioned.  During the press conferenceafter the meeting Powell dismissed this notion, at least for the timebeing.  “I think we’d need to seepersuasive evidence that our policy stance is not sufficiently restrictive tobring inflation down to 2% over time. That’s not what we think we’re seeing.”

Presently, we expect inflation to cool enoughto allow the Fed to cut interest rates later this year at least once andperhaps twice.

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