On the June FOMC

The statement changed by a single word, to acknowledge “modest" progress on inflation. But the “dot” for year-end 2024 was raised to take out two rate cuts, rising from 4-5/8% to 5-1/8%, leaving a single rate cut. But this is not entirely an anticipation of more restrictive policy, because the platform “longer-run” dot was raised by almost half as much, implying the Fed’s understanding that, in the absence of even a soft landing, the neutral rate must be higher than they’ve been saying all along. The estimate of 2024 core PCE inflation was raised from 2.6% to 2.8%, which Powell implausibly defended as base-effects. But with today’s CPI in hand, we see disinflation strongly continuing after a reinflation scare in Q1. Markets still expect two cuts this year, and so do we.