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Hope Remains for US Rate Cuts Later in the Year

6 May 2024

On May 1, the US Federal Reserve held its two-day FOMC (Federal Open Market Committee) meeting where it kept policy rates unchanged. The fed funds target range remained at 5.25% to 5.50%, where it has been since last July.  Fed Chairman Jerome Powell emphasized in policy statements that rates will persist at current levels “as long as is appropriate,” suggesting rates could be higher for longer.

The policy statement had two major changes from the Fed’s previous FOMC statement on March 20th. First, the opening paragraph now includes the phrase “In recent months, there has been a lack of further progress towards the Committee’s 2 percent inflation objective.” Assuming the Fed will want to see at least one quarter of solid inflation performance before it changes its view, a rate cut is not in the cards for some time. As a result, the scenario outlined in the March Summary of Economic Projections, which projected three rate cuts this year, is likely off the table. 

The other major announcement pertained to quantitative tightening. Beginning June 1st, the monthly run-off cap for Treasuries will decrease from $60 billion to $25 billion, while the non-binding MBS cap will remain at $35 billion. If payments get above the cap, they will be reinvested in Treasuries. This tapering of the cap on Treasuries was more than expected and will provide support for the ‘belly’ of the yield curve – the portion that sits between the short-term and long-term, typically encompassing bonds with maturities ranging from two to ten years. 

Movements in the belly of the yield curve are closely watched by investors and economists as they can signal shifts in market sentiment and expectations about the economy, inflation, and monetary policy.

While Powell indicated he still expects inflation to move down “over the course of the year,” the market’s concern is whether there is any possibility of rate cuts this year. April’s employment report revealed payroll growth of 175,000 jobs, following an upwardly revised 315,000 in March. This report put Fed rate cuts for 2024 back on the table and raised the odds of a September rate cut.

Data showed job growth slowed last month across various sectors, including services, goods, and government payrolls. The Household Survey, which is used to calculate the unemployment rate, showed a weaker labor market, with only a 25,000 increase in April, causing the unemployment rate to inch up by one-tenth of a percentage point to 3.9%. Hourly average earnings growth slowed to 0.2% in the month, down from 0.3% in March, coming in at 3.9% on a year-over-year basis, while average weekly hours worked fell slightly to 34.4 from 34.3.

After a sobering statement from the Fed, the market finds solace in the fact that while the Fed is committed to reaching 2% inflation, there are finally signs of adjustment in the labor market after consistently coming in above expectations for the past four months.  The April Employment Report adds to the evidence from other labour market indicators, like the JOLTs (job openings and labour turnover survey) report, that hiring is slowing down and labour market rebalancing is underway. The possibility of two rate cuts this year is now back on the table.

Housing Affordability Watch

CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis

In the last Housing Affordability Watch, we delved into the new housing road map laid out in the 2024 federal budget. Now, in our latest post, we’re offering additional insights on two related issues: private sector investment in rental housing and the impact of investors in the real estate market. Learn why both should be encouraged by reading our full post: Further Thoughts on the Budget and Housing


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The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.

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