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Fed's Powell keeps the door open for a July rate cut

By Greg Robb

Four key takeaways from Fed chair's press conference

Federal Reserve Chair Jerome Powell on Wednesday discussed for the first time possible "paths" for interest rates this year. The upshot is that while any move at the next meeting is off the table, there is still a chance of a rate cut in July, economists said.

Here are more details of the four main takeaways from Powell's press conference:

The June 'dot plot' will likely show the majority of Fed officials favor two or fewer rate cuts this year

In March, the Federal Reserve signaled in its "dot plot" that most officials thought that three rate cuts would be appropriate this year.

But with hot inflation readings since that meeting, economists knew there was going to have to be a reset.

While the Fed didn't release a dot plot on Wednesday, it will at the next meeting in mid-June.

Economists said Powell strongly hinted at where the dot plot is headed in his press conference.

In questions from reporters, Powell introduced three potential paths for monetary policy. Two paths would lead to rate cuts this year - one where inflation moves down toward 2% and one where the labor market starts to weaken.

The other path would be no cuts this year, with inflation moving sideways.

All of this amounts to a dot plot where the majority of Fed officials pencil in two or fewer rate cuts this year. Some officials will pencil in no moves, said Gregory Daco, chief economist at EY, in an interview.

The next Fed interest-rate committee meeting is June 11-12.

July cut makes more sense than September

Luke Tilley, chief economist for Wilmington Trust Investment Advisors, thinks that the first cut could come at the Fed's meeting on July 30-31.

Tilley said he interpreted Powell's comments to suggest that "we thought we would start in June. It's probably more like July now. We'll see," Tilley said in an interview.

Fed officials will have three more monthly readings of the personal consumption expenditure index before the meeting.

Tilley said it would be "incredibly hard" for the Fed to make the first rate cut in September. That's just too close to the election, when the campaign will be in full swing, he said.

The Fed has its fingers crossed it can move sooner, he said.

This came even as Powell said the Fed "doesn't, can't and won't" take the presidential election into account when deciding on interest rates, noted Ian Katz, an analyst with Capital Alpha.

Odds of a Fed hike remain very small

At the start of his press conference, PowelI said he thought it was "unlikely" that the next policy rate move will be a hike.

Pressed by reporters on whether there was any discussion of a potential rate hike at this Fed meeting, Powell stumbled a bit before saying "the policy focus has really been on what to do about holding the current level of restriction."

His start-and-stop answer suggests that there probably was some discussion of rate hikes by one or another of the 18 top Fed officials at the meeting, Daco of EY said.

"But that's not the consensus view. So, I was reassured that most participants believe the Fed has hit peak rates and there will be rate cuts later this year," Daco said.

Powell says he expects inflation to subside this year

Breaking somewhat with his past practice, Powell provided his own forecast for inflation in coming months.

"My personal forecast is that we will begin to see further progress on inflation this year," Powell said.

He said he wasn't sure it would amount to enough progress to trigger rate cuts.

Powell said that he expects low market rents to eventually push down the housing costs that have been pushing up consumer price inflation. "I'm confident that it will come but not so confident in the timing of it," Powell said.

-Greg Robb

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.


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05-01-24 1827ET

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