Federal Reserve Update: An Open Letter From Northpoint's President, Rich Dinges

The Federal Reserve, as expected, left their key borrowing rate at 5.25-5.50%. There was also very minimal change to their written statement.  Most importantly today, the dot plot shifted lower to only one cut expected in 2024. 

Chairman Powell’s press conference seemed rather hawkish on a day that we had surprisingly lower CPI readings.  The Fed seems overly focused on first quarter inflation readings and are not paying as much attention to the current softening of economic conditions.  They seem to have dropped their bias to begin lowering rates. 

Current PCE Core inflation is 2.75% year over year.  The Fed increased their expectation for year end PCE Core to be 2.8%.  The PCE Core read later this month is expected to come in at 2.6%.  An interesting question for the Fed is why the dot plot points to one reduction in the federal funds rate while they believe inflation will climb higher the second half of the year.  It seems to follow the theme of the past week beginning with the jobs report and now Powell’s press conference, which is data and messaging full of contradictions.