Daily Spotlight: Fed Takes a Hawkish Turn

Summary

The Federal Reserve wrapped up its latest Open Market Committee meeting yesterday and, as expected, held the federal funds rate steady at 5.25%-5.50%. The rate remains at its highest level since 2000 and is above the long-term average of 4.4%. This is the Fed’s plan: keep rates high to push inflation lower. In the meantime, inflation has indeed been on a downward trek. The latest CPI reading was 3.3%, down from 9.1% in July 2022, and the latest core PCE Price Index reading (the Fed’s favorite metric) was 2.8%. Yet despite progress, both measures are still well above the Fed’s target of 2.0%, and the slope of the downward trajectory has flattened lately. Those are potential problems for a central bank that watched while inflation got out of hand in 2020-2021 and wants to rebuild its reputation as an effective inflation fighter. Here are our key takeaways from the Fed meeting, the follow-up press conference, and the release of the central bank’s Summary Economic Projections, commonly referred to as “the dot plot.” 1) The median projection for federal funds rate cuts this year is now one, versus the prior forecast for three — a big move in a hawkish direction. 2) The Fed appears to be trying to balance the positive impact of a restrictive policy on inflation versus the negative impact

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