Fed faces a tough policy decision in June

The Fed left unchanged its monetary policy settings following the March 19-20 policy meeting as expected. The revised Summary of Economic Projections, also known as the dot plot, showed that policymakers were still projecting a total of 75 basis points (bps) reduction in the policy rate in 2024. 

In the post-meeting press conference, Federal Reserve Chairman Jerome Powell repeated that they need “greater confidence” of inflation moving toward the 2% target in a sustainable way before starting to cut interest rates. Although markets saw a strong probability of a policy pivot in June, hawkish comments from Fed officials since the March meeting and the impressive labor market data caused investors to reassess the rate outlook.

Atlanta Fed President Raphael Bostic noted that he was expecting the US central bank to lower the policy rate once this year, most likely in the last quarter. On another note, “I believe it’s much too soon to think about cutting interest rates,” Dallas Fed President Lorie Logan said, citing upside risks to inflation. Additionally, Minneapolis Fed President Neel Kashkari said that he pencilled in two interest rate cuts this year and added: "If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all."

Meanwhile, the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls rose 303,000 in March, beating the market expectation for an increase of 200,000 and highlighting the persistent strength of the labor market. 

Following the hawkish Fed commentary and March jobs report, the probability of a June rate cut declined toward 50% from above-60% earlier in the week, according to the CME FedWatch Tool.

Previewing the March Federal Open Market Committee (FOMC) Minutes “the FOMC opted again for patience at its March meeting as it continues to look for evidence that provides ‘greater confidence’ around inflation moderation. Fed officials also stuck with their median projection of 3 rate cuts for this year, despite upgrading most macro projections for 2024,” TD Securities analysts said in a note. “Debates about the short-term policy outlook and QT tapering will garner most attention,” they added.