Fed cools Gold, stocks, buoys US Dollar

The Federal Reserve is split on the path for rates, and this uncertainty cools the enthusiasm after the soft CPI which triggered a big rally. Interest rates have a critical role in moving financial markets, and the US Federal Reserve (Fed) is the most influential central bank.

The Fed announces its decisions roughly every six weeks, but publishes new forecasts only every three months. These projections are dubbed “dot plot” and consist of an outlook for employment, growth, inflation and interest rates.

Back in March, the median Fed forecast was for three rate cuts, and a smaller number of reduction is expected now, as inflation has generally exceeded estimates in 2024. On the other hand, the May Consumer Price Index (CPI) report – published on the same day – showed softer inflation. Markets price two cuts coming this year, with the first in September.

The Fed dot plot is released at 14:00 Eastern / 18:00 GMT / 19:00 London time, alongside the statement. It takes higher significance after the data, and as the bank is set to leave internet rates unchanged once again, in its . Chair Jerome Powell will address the press 30 minutes after the release.

Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25%-5.5% and responds to questions in the post-meeting press conference.

Powell’s Press Conference Key Quotes

“A broad set of indicators suggest the labor market back to where it was on the eve of the pandemic.”

“Overall broad set of indicators in the labor market show it is relatively tight but not overheated.”

“We expect labor market strength to continue.”

“More recent readings on inflation have shown easing.”

“So far this year, we have not got greater confidence on inflation in order to cut.”

“Will need to see more good data to bolster confidence on inflation.”

“If the economy remains solid and inflation persists, will keep rates where they are for as long as needed.”

“The opposite is also true in terms of rate cuts.”

“Policy is well-positioned, will continue to make decisions meeting by meeting.”

“We need further confidence, more good inflation readings but won’t be specific about how many to start rate cuts.”

“We’ll also be looking at balance of risks, outlook as well.”

“Unexpected weakness in labor market could also call for a response.”

“We will be monitoring labor market for signs of weakness, but not seeing that right now.”

“We don’t see ourselves as having the confidence that would warrant policy loosening at this time.”

The revised Summary of Economic Projections, the so called dot-plot published alongside the policy statement, showed that 4 of 19 officials saw no rate cuts in 2024, 7 projected a 25 basis points (bps) rate reduction, while 8 marked down a 50 bps cut in the policy rate.
Key takeaways from Fed policy statement and dot plot
“Fed officials’ median view of fed funds rate at end-2024 5.1% (prev 4.6%).”
“Fed officials’ median view of fed funds rate at end-2025 4.1% (prev 3.9%).”
“Fed officials’ median view of fed funds rate at end-2026 3.1% (prev 3.1%).”
“Fed officials’ median view of fed funds rate in longer run 2.8% (prev 2.6%).”
“Fed projections imply 25 bps of rate cuts in 2024 from current level, another 100 bps in 2025.”
“Fed policymakers see end-2024 PCE inflation at 2.6% versus 2.4% in March projection; core seen at 2.8% versus 2.6%.”