US FEDERAL RESERVE REVISED THEIR PLANS FOR RATE CUTS

News: US Federal Reserve hit a pause button once again in June meeting leaving benchmark rates between 5.25% and 5.5% a 23-year high but left door open to rate cut this year. FOMC  economic projections, showed a median forecast for just one interest rate cut in 2024, compared with three in March. The forecasts showed that the policymakers expect to cut their benchmark rate to 5.1% by the end of 2024 compared to 4.6% projected in March. Fed also pushed out the start of rate cuts to perhaps as late as December. Fed Chair Jerome Powell said “We have made pretty good progress on inflation,” Wednesday’s report was “a step in the right direction but you don’t want to be too motivated by any single data point". In order to cut rates, “we’ll need to see more good data". On the data front Fed revised up its projections for inflation. It expects core inflation to rise to 2.8% this year compared to March projections of 2.6%, unemployment rate is seen ending 2024 at 4% and GDP growing by 2.1% in 2024 unchanged compared to March Projections. They also see core inflation of 2.3% at the end of next year compared to March projection of 2.2%. Unemployment rate is expected to rise to 4.2% next year up from 2024 year end projection of 4.0% and March forecast of 4.1%. Dollar and Yields moved lower yesterday after data showed that inflation in May rose less than expected, but pared losses after FOMC meeting. Dollar slipped to 104.68, 10-year treasury note slipped to 4.316% and 2-year treasury yield, which typically moves in step with interest rate expectations decline to  4.756%.

Views: We expect Dollar Index to face the hurdle near 106.50 levels as dollar failed to surpass that level twice in 2024 and slip back towards 102.0 levels in the coming days as US Federal Reserve left door open to rate cut this year. If we look at the economic data, Inflation has fallen significantly from its peak, activity in manufacturing sector continued to contract and wage growth has been moderating, which should warrant lower interest rates down the path. Even if FOMC reduced its median estimate of rate cut, it’s a very near thing with roughly half of members still looking for 2 rate cuts.

Impact: Positive