The Fed remains on track towards price stability (and consequently, rate cuts), despite ‘bumps’ seen in the inflation data in early 2024.
The Fed made no changes to its monetary policy in the March meeting, as widely expected. Updated rate projections still signal three rate cuts this year, but 2025, 2026 and longer-term ‘dots’ we revised slightly higher. While Powell did not specify the timing, he suggested that the Fed is soon looking to slow down the pace of QT. That said, we do not believe that completely ending the balance sheet run-off will be on the cards in the near-term.
Slightly higher share of participants reported core inflation risks as tilted to the upside. Interestingly, the longer-term rate projection was revised up to 2.6% . In the past, we have discussed quick recovery in foreign labour force, faster productivity growth and persistently expansionary fiscal policy as possible drivers of faster potential growth, which could imply that the neutral rate of interest is also higher.
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