More rate hikes likely, growth forecast suggests soft-landing: Yardeni Research after Fed meeting

The US Federal Reserve has left the policy rates unchanged at 5-5.25 percent.

The Federal Open Market Committee’s rate hiking cycle may not be over, according to Yardeni Research.

The US Federal Reserve has left the policy rates unchanged at 5-5.25 percent, after the Federal Open Market Committee (FOMC) meeting. In the speech delivered on June 14, the Fed Chairman Jerome Powell said, “Looking ahead, nearly all Committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2 percent over time.”

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Yardeni Research, which is a sell-side consultancy led by the economist Dr Edward Yardeni, tweeted, “Last Sunday, we predicted the FOMC would skip another rate hike but hint that rate hiking might not be over. And that's exactly what happened."

The Tweet pointed to FOMC's statement: "Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy."

According to the consultancy, there could be two more rate hikes this year. “The latest Summary of Economic Projections shows the federal funds rate rising to 5.6%, up from the 5.1% projected in the December and March SEPs. This implies two more 25bps rate hikes this year,” they wrote.

Inflation remains sticky and the economic survey has shown that the measure of inflation—Personal Consumption Expenditures Price Index—was above what had been forecasted. “Fed Chair Jerome Powell said that the core inflation rate remains sticky and too high. He wants to see more progress in getting it down. The SEP (Summary of Economic Projections) shows the core PCED (the inflation index) at 3.9% this year, up from the March SEP projection of 3.6%,” the tweet said.

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“However, the committee still expects this inflation rate to fall to 2.2% in 2025. No one on the committee expects a rate cut this year,” it added.

Growth projections seem to have improved, which suggests a soft landing, according to the researchers. “Interestingly, while the Fed's staff projected a mild recession at the May meeting, the committee raised its projection of economic growth. Real GDP is expected to be up 1.0% this year versus the March estimate of 0.4%,” the consultancy pointed out.

“This suggests a soft landing, which aligns with our forecast. The Fed's latest moves and projections give us a lot to consider as we navigate the economic landscape,” it added.