What Makes This Economist Think Two Fed Rate Cuts Are Possible This Year?

(RTTNews) - The U.S. Federal Reserve left the federal funds rate target unchanged on Wednesday and forecast just one interest rate cut for this year, but Capital Economics thinks two rate cuts are possible.

"Overall, there's nothing here that rules out a September rate cut," Capital Economics economist Paul Ashworth said.

"It all depends on the incoming data. If employment growth edges down again and the May price data prove to be the start of a renewed disinflationary trend, as we expect, then two rate cuts this year is still the most likely outcome."

Ashworth also said the latest Fed policy announcement cannot be called "hawkish".

Earlier on Wednesday, the Fed decided to maintain the target range for the federal funds rate at 5.25 to 5.50 percent, in support of its goals of maximum employment and inflation at the rate of 2 percent over the longer run.

Read more: Fed Leaves Interest Rates Unchanged, Sees Just One Rate Cut This Year The continued need for "greater confidence" that inflation is slowing was reflected in the Fed officials' forecast for interest rates.

The latest projections showed officials now expect rates in a range of 5.0 to 5.25 percent by the end of 2024, suggesting just one rate cut this year compared to the three forecast in March.

Meanwhile, the Fed raised the forecast for core consumer price growth to 2.8 percent from 2.6 percent.

"With core PCE inflation on track to fall to 2.6 percent in May, that assumes prices will increase at a slightly faster pace than the 2.0 percent rate we saw in the second half of last year," Ashworth reckoned.

"We suspect that's overdoing the pessimism a little," the economist added.

Consumer price inflation slowed to 3.3 percent in May from 3.4 percent in April, data from the Labor Department revealed earlier on Wednesday.

The annual rate of core consumer price growth also slowed to 3.4 percent in May from 3.6 percent in April.

Read more: U.S. Consumer Prices Unexpectedly Flat In May, Annual Growth Slows To 3.3%