The U.S. Federal Reserve maintained the target range for the federal funds rate on Wednesday and projected only one interest rate cut for this year. However, Capital Economics suggests that two rate cuts are still a possibility.
"Overall, there's nothing here that rules out a September rate cut," said economist Paul Ashworth of Capital Economics. "It all depends on the incoming data. If employment growth slows again and May's price data mark the start of a renewed disinflationary trend, as we expect, then two rate cuts this year remain the most probable outcome."
Ashworth noted that the latest Fed policy announcement should not be labeled as "hawkish."
Earlier on Wednesday, the Fed opted to sustain the federal funds rate at 5.25 to 5.50 percent, aligning with its objectives of maximum employment and long-term inflation at 2 percent.
For further details, see: "Fed Leaves Interest Rates Unchanged, Sees Just One Rate Cut This Year."
The necessity for "greater confidence" in inflation's reduction was evident in the Fed officials' interest rate projections. The latest forecasts indicate that officials now anticipate rates to be in the range of 5.0 to 5.25 percent by the end of 2024, suggesting only one rate cut this year compared to the three projected in March.
Additionally, the Fed increased the forecast for core consumer price growth to 2.8 percent from 2.6 percent.
"With core PCE inflation on track to fall to 2.6 percent in May, this assumes a slightly faster price increase than the 2.0 percent rate observed in the second half of last year," Ashworth commented. "We suspect that perspective is somewhat overly pessimistic," the economist added.
Labor Department data released earlier on Wednesday showed that consumer price inflation eased to 3.3 percent in May from 3.4 percent in April. The yearly rate of core consumer price growth also slowed to 3.4 percent in May from 3.6 percent in April.
For additional information, read: "U.S. Consumer Prices Unexpectedly Flat in May, Annual Growth Slows to 3.3%."
