Fed’s confidence in a soft landing grows

Highlights:

• In sticking to its expectations of three rate cuts this year, the Fed revised up its growth forecast until 2026. Positive supply side developments, the FOMC believes, have made the economy more resilient to higher rates, allowing the Fed to remain patient on monetary easing.
• The FOMC turned more tolerant on inflation, raising its YE forecast by 0.2pp to 2.6% but dismissed concerns about the recent data. The projected policy rate for YE 2025 has been raised by 25 bps, but the 2024 dot still envisages 75bp cuts this year despite more sluggish disinflation . The median expectation for the long-term rate is also up, by 10 bps, consistent with better trend growth and higher debt.
• Powell strongly hinted that the Fed will soon slow the pace of Quantitative Tightening, but this does not imply a higher equilibrium value for the stock of asset holds, he added.
• We stick to our view of three rate cuts this year, starting from June. Markets cheered the unchanged 2024 dot and overall dovish tone of the meeting, with the S&P closing at a new high and the 2 year rate losing 10bps

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