NEAM Insights

May Overview Fed minutes referring to the most recent meeting showed that officials questioned whether policy was indeed restrictive enough. Participants wanted to see more “sustainable” progress on the road to their 2% inflation target and felt it would be necessary to keep a constrained policy stance for longer given concerns over the persistence of higher inflation readings which had been “disappointing” during the first quarter of 2024. Read More

April Overview Fed minutes relating to the March meeting showed that although nearly all participants felt it might be appropriate to reduce the Fed Funds rate later this year, they still needed to be convinced that inflation was “sustainably” on its way towards 2% before acting. Noting that improving supply conditions were a positive, while appreciating that the path to lower inflation would be “uneven,” participants acknowledged the continuation of strong economic data, and saw “disappointing readings” on inflation as a hurdle to clear before they had enough confidence to reduce their current policy stance. Indeed, by keeping its benchmark rate unchanged for the 6th time at the most recent meeting while citing the “lack of further progress” in bringing inflation to its target, the Fed further cemented its wait-and-see posture. In the post-meeting press conference, against the backdrop of stalled progress on inflation, Fed Chair Powell stated that they are willing to hold the current range “for as long as appropriate” as achieving “greater confidence will take longer than expected.” Understandably and accordingly, market expectations for the initial rate cut moved further back in the year while Treasury yields rose. Read More

March Overview As widely expected, the Fed held its benchmark rate range steady at 5.25-5.50% at its most recent meeting. The decision to do so was unanimous. Although the median rate expectations for 2024 remained the same (4.6%), projecting a total reduction of 75 bps by year-end, estimates for 2025 (3.9%) and 2026 (3.1%) moved upwards, suggesting a slightly tighter framework than before. Median economic projections saw growth estimates increase while the unemployment rate came down marginally. Inflation readings increased for this year, presumably as readings to date have come in higher than previously expected, while estimates for the latter years remained unchanged. Despite progress made to date, the Fed remains “attentive to inflation risks,” and given growth has held up and the labor market remains resilient, it is focused on leaving rates at a sufficiently restrictive level until it gets more evidence that inflation continues to converge on their longer-term target. The result has been a shift in market expectations for the timing of the first rate cut to the summer. Read More

February Overview In the absence of a Fed meeting this month, the market combed through the Fed minutes from the January meeting to divine the committee’s thoughts on the path and timing of a reduction in the Fed Funds rate. The minutes highlighted that although committee members believed rates were at their peak, and that they expect to lower rates going forward, it made more sense to wait before acting to ensure that the improvement in inflation was “sustainable.” The minutes noted that improving supply side effects related to labor markets, productivity, and supply chain improvements, along with their currently restrictive level of policy, were helping to make continued progress towards their goals. However, ultimately the message was that it paid to take their time and focus on the incoming data. With some seeing the risks to inflation “titled to the upside” and believing the risks of cutting too quickly could lead to the possibility that “progress could stall” and prolong their battle to reign inflation back in, they were inclined to keep their rate on hold. Indeed, as Fed Governor Waller would highlight in a recent speech after the meeting, data since the end of last year has been stronger and inflation prints have risen, thus giving support to the Fed to “not rush” to begin cutting rates. Read More