FOMC Meeting: Key Takeaways

June FOMC meeting | June 12, 2024

The Federal Open Market Committee (FOMC or the Committee) kept the federal funds rate unchanged at 5.25% – 5.50% for the seventh straight meeting. The FOMC stated that “it will not be appropriate to reduce the federal funds target range until inflation moves sustainably toward 2%.” The Federal Reserve (Fed) continues reducing its holdings of U.S. Treasury securities and agency mortgage-backed securities, under the updated monthly cap of $25 billion and $35 billion, respectively, that started earlier this month.

• Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.
• The FOMC judges that the risks to achieving its employment and inflation goals have moved into better balance. The economic outlook is uncertain and the Committee remains highly attentive to inflation risks.

• In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
• Also, the FOMC 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%. The Committee will continue to take into account a wide range of information, including readings on labor market conditions, inflation pressures, inflation expectations, and financial and international developments. We still believe the Fed has reached its terminal policy rate for this cycle and that the Fed will proceed cautiously and attempt to move away from being overly restrictive; however, at this time it is still waiting for the disinflationary trend to solidify. The latest median federal funds target range projections from the FOMC imply that policymakers expect one rate cut this year, finishing 2024 at 5.1% and four additional cuts in 2025.

• The FOMC maintained its gross domestic product growth forecast for 2024, 2025, and 2026, while increasing slightly its unemployment expectation for 2025 and 2026. Upward revisions were evident in its headline and core inflation forecasts raising 2024 and 2025 estimates by 0.2% and 0.1%, respectively. Our current view is that the Fed will attempt to cut rates twice before year-end, however, the probability for the federal funds rate to remain on hold at current levels is increasing, especially if inflation remains sticky.
• We continue to position portfolios defensively. We believe fixed-income investors may benefit by being most favorable short-term fixed income and neutral intermediate- and long-term.

• July 31 | September 18*| November 7 | December 18*
  

  *Indicates the meeting is associated with a summary of economic projections. In addition, every meeting will be accompanied by a press conference.

Forecasts and targets are based on certain assumptions and on views of market and economic conditions which are subject to change.

All investing involves risks including the possible loss of principal. Investments in fixed-income securities are subject to interest rate, credit/default, liquidity, inflation, and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. Credit risk is the risk that an issuer will default on payments of interest and principal. This risk is higher when investing in high yield bonds, also known as junk bonds, which have lower ratings and are subject to greater volatility. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability or best interest analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.

Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions or communications made with Wells Fargo Advisors.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.