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Down to a Single Cut

With sticky inflation and a strong job market, the Fed has revised expectations for the number of rate cuts this year from three to one.

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Key Takeaways

  • As expected, the Federal Reserve’s Federal Open Market Committee (FOMC) continued to hold the federal funds target rate range at a 23-year high of 5.25% to 5.50%.
  • The FOMC’s second projections for the year dropped the number of expected interest-rate cuts from three to one.
  • The committee also revised its longer-term rate-cut projections, increasing the number of cuts for 2025 by one (for a total of four) and increasing the cuts for 2026 by one (for a total of four).

At their June meeting, Federal Open Market Committee (FOMC) members unanimously agreed to leave the fed funds rate range unchanged at 5.25% to 5.50%. The stand-pat stance was expected; the market believed there was a 98% chance of keeping rates steady. Investors continue to price in a September cut, signaling a 56% chance for a 25-basis-point cut.

There was little change to the Fed’s statement from its May meeting, as the committee reiterated the central bank’s goal of getting inflation back to its 2% target. The second run of the Summary of Economic Projections (SEP), informally known as the “dot plot,” for 2024 showed 11 of 19 policymakers expect no more than one rate cut in 2024, with four of those penciling in no cuts. Eight FOMC members anticipate two rate reductions.

Coming into the meeting, investors mostly focused on two key questions: One, would Fed Chair Jerome Powell and the FOMC adopt a more dovish stance? They didn’t. And two, what revisions would be made to the dot plot from March? The Fed made only a few changes, the most significant being adjusting projections for 2024 from three rate cuts to one. It also increased core Personal Consumption Expenditures Index (PCE) expectations from 2.6% to 2.8% this year—along with an upward revision in 2025. The Fed also expected unemployment in 2025 and 2026 to be higher than previously predicted.

Inflation moderated slightly in April after having registered firm prints in the first three months of the year, easing concerns of a reacceleration of price pressures. At the same time, other economic data showed signs of a slowing economy, even though domestic demand indicated underlying growth momentum. Also, May’s payroll report continued to show solid growth, likely supported by a boost in immigration. Even so, the unemployment rate has edged higher, reaching 4% in May.

Below are the Fed statement language changes from May:

Source: FOMC as of 6/12/24.

Here are the committee’s June projections for GDP, unemployment, inflation, and the federal funds rate for 2024 through 2026:

Source: Federal Reserve Statement of Economic Projections as of 6/12/24.

After the Fed announcement, the 10-year Treasury ended the day lower and finished at 4.31%; short and long rates were also lower. The Dow Jones Industrial Average and S&P 500 Index returned -0.09% and 0.85% for the day.

Source: Federal Reserve Statement of Economic Projects as of 6/12/24.
10-Year Treasury Yield Over the Past 12 Months
Source: FRED as of 6/12/14. U.S. Department of the Treasury as of 6/12/14.

In Conclusion

With revisions to the dot-plot projections, the fourth FOMC meeting of 2024 shed a little more light on what market participants might expect from the Fed for the rest of the year, as well as 2025 and 2026. While it came as no surprise that the Fed reiterated its higher-for-longer approach, some investors had been projecting two rate cuts in 2024, while FOMC now expects just one. While the baseline call for one 25-basis-point cut in September does seem reasonable and would likely not offset the balance in the markets, this assumption can only come into fruition if core inflation measures continue to trend toward the Fed’s 2% target and the labor market moderates. A first cut delayed until December should not be off table, and investors may want to prepare for a higher-for-longer interest-rate environment.

Rate-cut expectations for the FOMC’s next meeting in July started the day at 14.5% (per the CME Groups Fedwatch Tool), as the market has seen during this rate-hiking cycle that the Fed has remained data dependent and inflation has continued to be sticky. Prior to the meeting, the U.S. Bureau of Labor Statistics reported in May a decline in the Consumer Price Index (CPI) to 3.3% year-over-year, down from 3.4% in April and slightly below market expectation of 3.4%. Annual core CPI rose 3.4%, a decrease from April’s 3.6% and below analysts’ estimates of 3.5%. Despite these numbers, there was little shift in the Fed’s hawkish tone, largely due to stubborn inflation. While the higher-for-longer song continues to play on across the U.S., investors may want to take advantage of these record high-interest rates before they become a thing of the past.


One basis point is equal to 0.01%.

The Consumer Price Index (CPI) measures the overall change in consumer prices based on a representative basket of goods and services over time. Core CPI is the change in prices of goods and services, except for those from the food and energy sectors.

The Dow Jones Industrial Average index (DJIA) tracks the share price of the top 30 large, publicly-owned U.S. companies which is often used as an indicator of the overall condition of the U.S. stock market.

Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.

Personal Consumption Expenditures (PCE) refers to a measure imputed household expenditures defined for a period of time.

The S&P 500 index is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the U.S. stock market.

The Summary of Economic Projections (SEP), known informally as the “dot plot,” is a collection of forecasts for the economy, inflation, the labor market, and interest rates offered by the seven Fed governors and 12 regional Fed presidents

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The views expressed are as of the publication date and are presented for informational purposes only. These views should not be considered as investment advice, an endorsement of any security, mutual fund, sector or index, or to predict performance of any investment or market. Any forward-looking statements are not guaranteed. All material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The opinions expressed herein are subject to change without notice as market and other conditions warrant.

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Bloomberg Finance L.P. is unaffiliated with Aristotle Capital, Aristotle Funds, their affiliates, their distributors, and representatives.

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