May FOMC Meeting

Christopher Bowlby - May 02, 2024

As expected, the FOMC has kept the Fed Funds rate at a 23-year high for the sixth straight meeting and announced a slowdown in the pace of balance sheet runoff beginning in June.

May Federal Reserve Meeting

 

On May 1st, the Federal Reserve wrapped up its FOMC meeting, and as widely expected, the committee unanimously decided to maintain the Fed Funds rate at its current range of 5.25%-5.50% for the sixth consecutive meeting. The post-meeting statement noted some significant adjustments, acknowledging the recent uptick in inflation over the past few months. During the press conference, Chair Jay Powell emphasized that "the data have not yet provided us with sufficient confidence that inflation is on a downward trajectory," and that "achieving this confidence is likely to take longer than previously anticipated."

 

A major announcement from the meeting was the adjustment to the Quantitative Tightening (QT) policy. The monthly runoff cap for Treasuries will be reduced to between $25 billion and $60 billion starting June 1st, with the cap for mortgage-backed securities (MBS) remaining at $35 billion. Should these payments exceed the caps, the excess will be reinvested in Treasuries.

 

Despite a somewhat more hawkish tone in the statement, Chair Powell mentioned that the committee requires "persuasive evidence" to deem the current monetary policy overly restrictive. He also outlined several potential paths forward for the Fed:

  1. Persistent high inflation = maintaining current rate levels
  2. Confidence regained that inflation is moving towards the 2% target = potential rate cuts
  3. Signs of weakening in the labor market = potential rate cuts

 

Bottom Line: As expected, the FOMC has kept the Fed Funds rate at a 23-year high for the sixth straight meeting and announced a slowdown in the pace of balance sheet runoff beginning in June. While inflation has moderated over the last 12 months, recent higher inflation readings have pushed back the timeline for rate cuts to the second half of 2024. The Fed remains in a wait-and-see stance. Markets continue to hinge on data, with the upcoming April CPI numbers on May 15th set as the next significant focus.