The FOMC statement issued June 12 is virtually unchanged from the one published May 1. The assessment of growth and the labor market remains the same. The assessment of inflation has been upgraded to"modest further progress" from"a lack of further progress" in the prior version. The language related to the change in the balance sheet reduction program has been removed, but the outlook for interest rate policy remains the same. The FOMC said,"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." The FOMC remains hawkish for the moment and until the economic data counsel a change of direction.

Revisions to the summary of economic projections were minimal in the June report. There was no change in forecasts for GDP growth of 2.1 percent in 2024, 2.0 percent in 2025, and 2.0 percent in 2026. The unemployment rate forecast for 2024 remains 4.0 percent, while the unemployment rates for 2025 and 2026 are up a tenth to 4.2 percent and 4.1 percent, respectively.

The forecast for inflation is a bit higher than previously thought. The PCE deflator for 2024 is revised up 2 tenths to up 2.6 percent, and 2025 up 1 tenth to 2.3 percent, while 2026 is unrevised at 2.0 percent. The core PCE deflator shows a similar revision. The core PCE deflator is revised up 2 tenths to 2.8 percent in 2024, up 1 tenth to 2.3 percent in 2025, and unrevised at 2.0 percent in 2026.

The slightly more elevated inflation outlook is likely the main reason for the change in the forecast for the midpoint of the fed funds rate target range. For 2024, the forecast is 5 tenths higher at 5.1 percent, and 2 tenths higher at 4.1 percent for 2025, but unrevised at 3.1 percent in 2026. For 2024, the implied rate path is one rate cut of 25 basis points. For 2025 and 2026, the forecast implies four rate cuts of 25 basis points for each year. It is important to remember that is this only a forecast, not a promise of policy action. At this point, if the forecast comes to fruition, for 2024 the rate cut is more likely to occur in the fourth quarter than in the third quarter. The FOMC will be waiting to be sure that disinflation won't stall again and/or that the labor market maintains its healthy condition.

The Fed is once again expected to keep rates unchanged at its June meeting. Markets are putting even money on an initial rate cut at the September meeting with slightly better odds in November.

The FOMC meeting announcement is a policy statement issued at the conclusion of each meeting of the Federal Open Market Committee. It offers updates on economic conditions with special focus on the health of the labor market and the latest on inflation. It also updates the status of the federal funds target which is the FOMC's official policy interest rate. This rate is expressed within a range, such as 1.75 to 2.00 percent. The center of this range is the implied target. The higher this target, the more restrictive monetary policy becomes, the lower this target, the more accommodative policy becomes. Other policy tools are also discussed in the meeting announcement including updates on direct purchases of Treasuries and mortgage-backed securities. Debate is not offered in the statement, just the consensus view is expressed, though the statement does list the total committee vote and how each member voted.

The Fed determines interest rate policy at FOMC meetings. These occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars. When bonds yield 5 percent, they will attract more money away from stocks than when they only yield 3 percent.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.

The Fed also began quantitative easing during the past recession and, through direct purchases in the market, steadily increased its holdings of Treasuries and mortgage-back securities before pulling back from the program beginning in late 2017. Along with lowering its bond holdings, the Fed began to gradually raise its federal funds target until mid-2019 when, facing slowing global growth, it began to lower its target.

Frequency
Eight times a year.