This past week saw the release of a raft of important economic data which, in combination with the FOMC’s decision, have important implications for the path of interest rates through 2024. At the beginning of the week, we got the advance estimate of real GDP growth for Q1 2024, which came in at 1.6%, down about half from the 3.4% growth experienced in Q4 2023, suggesting an abrupt slowdown in the economy. Then, on Wednesday, in the middle of the FOMC’s two-day meeting, the JOLTS (Job Openings and labor Turnover Summary) data for March were released, showing job openings relatively unchanged at 8.1 million, a very high level, indicating a strong labor market in the middle of what appears to be an economic slowdown. That inference of an economic slowdown was further supported by the BLS jobs data, which showed that job creation in April slowed to 175,000, down from 315,000 in March and 236,000 in February, and the unemployment rate held constant at 3.9%. The numbers for the week led the NY Fed to drop its Q2 GDP forecast from 2.74% to 2.23%. This forecast is still greater than the 1.8% widely thought to be potential for the economy.
In the middle of these data releases, the FOMC met on Tuesday and Wednesday and decided to hold the target funds rate range constant and also to slow the rate that it would let maturing Treasuries and agency securities run off. In his post-meeting press conference, Chairman Powell both led off and concluded with a strong statement of the Committee’s determination and commitment to bring inflation down to its 2% target for PCE. He went on to note that GDP had declined in Q1 but chose in his prepared remarks to focus instead on Private Domestic Final Purchases, which he argued can send a more realistic picture of underlying demand. They rose 3.1% in the first quarter. He also noted the continued strength in consumer spending. During the press conference he was pressed several times for some projection of how many rate cuts might be in line for 2024, and when. He was very clear that rate cuts would not begin until the Committee was confident that inflation was on course to fall to 2%. He was also clear that the numbers for January, February and March did not provide such confidence. When questioned about how many months might be required before a rate cut would be in order, he demurred and said that the answers lie in the incoming data. What one might infer is that at least three months of declining inflation towards 2% would be a minimum before the Committee would even consider a move, which would put any rate-cut decision well into the fall.
What one came away from the meeting with was the Committee’s firm commitment to first get inflation on track to hit 2%, and that they would require substantial evidence in the data before moving on rates.
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