The Fed report

AGNC’s Take On The FOMC Policy Update
June 13, 2024

Yesterday, the Federal Open Market Committee (FOMC) released its statement and held a press conference following the conclusion of its June meeting.

FOMC Policy Updates: Key Highlights

The Committee voted unanimously to maintain the target range for the Federal Funds Rate at 5.25-5.50% for the seventh consecutive meeting.
The statement noted that, in recent months, there has been “modest further progress” toward the Committee’s 2% inflation objective, an update from the “lack of further progress” cited in the May statement.
As noted in prior statements, the FOMC reiterated that it does not expect to cut rates until “it has gained greater confidence that inflation is moving sustainably toward 2%.”
As previously announced, the Fed began to slow the pace of U.S. Treasury balance sheet runoff in June, reducing the monthly redemption cap to $25 billion from the prior $60 billion. The Fed has maintained the monthly redemption cap for Agency debt and Agency MBS at $35 billion.
Based on the Fed’s revised “dot plot” forecast for the year-end Federal Funds rate, eight officials expect two rate cuts, seven officials expect one rate cut, and four officials expect no rate cuts in 2024, resulting in a median forecast of one rate cut this year. The number of rate cuts forecast assumes each rate cut is 25 basis points.

Our Take

At its June meeting, the Fed maintained its measured and economic data-dependent approach to monetary policy.
Chairman Powell’s press conference remarks were guarded and cautious not to place undue emphasis on the recent improvement in both labor and inflation readings.
Although the Fed’s median short term rate forecast expects just one 25 basis point rate cut in 2024 (compared to an expectation of three from the prior meeting), the Fed’s 2026 Federal Funds Rate median forecast remained unchanged from the prior meeting at 3.125%. Thus, the Fed continues to anticipate over 200 basis points in rate cuts over the next 30 months.
The recent PCE, CPI, and PPI reports were better than expected from an inflationary perspective, while labor readings showed further signs that the labor market may be weakening with the unemployment rate hitting 4.0% in May for the first time since January 2022.
Economic data reports to be issued prior to the next Fed meeting on July 30-31 could provide the Fed the confidence it is seeking that inflation is sufficiently contained. A rate cut in September could be possible if inflation data continues to trend lower and the labor market continues to move into better balance.

Important Disclosures
The thoughts, opinions, and outlook contained in the “Our Take” section are solely those of AGNC Investment Corp. (“AGNC”) management and are being shared for informational purposes only and should not be construed as investment advice. Neither the Federal Reserve nor any other third party has contributed to or been involved in AGNC’s preparation of these materials. AGNC does not endorse or adopt the views of the Federal Reserve or any third party.

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