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Fed leaves interest rates unchanged, as expected

Amid inflation outlook uncertainty, official guidance now points to only one cut in 2024.

12 June 2024

The Federal Reserve's Open Market Committee (FOMC) decided to leave US interest rates unchanged, in another sign of a lack of consensus around the future trajectory for inflation and therefore rates. While US headline CPI inflation has fallen from its 9.1% peak in June 2022 to 3.3% today, the uncomfortable reality is that the 'mid-threes' is where inflation appears to have got stuck since the summer of 2023.

For the Federal Reserve (Fed) this is uniquely frustrating, since central banks thrive on neat narratives they can provide the wider market, with their credibility hanging on these. But, having come unstuck insisting on inflation being “transitory” in 2021-22, the Fed is now on the threshold of another credibility challenge having declared at the end of 2023 that the path was clear for rates to ease. But today that path is not clear given the stubborn inflation picture described and so rates remain unchanged.

Where does all this leave investors? Beyond the inevitable obsessing in the aftermath of today's decision over whether one or two rate cuts are now going to be priced in before the end of the year, it is probably fair to say that rate-sensitive investments - which have been buffeted around by the 'narrative ping pong' that has dominated for the last couple of years - look set for continued volatility. Meanwhile the technology megacaps, whose demise commentators have been so keen to herald for so long, simply carry on unfazed.

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Julian Howard

Chief Multi-Asset Investment Strategist
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