US | The Fed projects just one rate cut this year but signals four in 2025

Summary

With the fed funds rate at its peak, growing chances of disinflation resuming in 2Q24 and more balanced risks, the Fed is likely to remain cautious in determining the timing of a first rate cut.

Key points

• Key points:
• The Fed decided to hold the policy rate unchanged at 5.25-5.50% and offered a slight dovish wink following today’s better-than-expected CPI report.
• Broadly unchanged projections for GDP growth and the UR point to continued confidence in a scenario in which the economy grows around potential in 24-26.
• The Fed signaled just one rate cut this year still due the bump in the road of the first quarter; it seems to have been a close call as markets were pricing it in.
• Financial markets were little changed following the big but expected shift in the dot-plot: futures continued to assign ~50% odds of a rate cut in September.
• We stick to our call that easing core inflation will open the door for the Fed to cut rates two times this year, in September and December.

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