Cautious About Forward Inflation

d FOMC meeting, Fed members acknowledged that uncertainty has decreased since the previous meeting and remained cautious of forward expected inflation.

 The Fed revised its language on stagflationary risk, toning it down, as the risks of higher unemployment together with elevated inflation have somewhat moderated.

Below are the key changes made in the statement this time:

As it was a quarterly meeting, it included updated economic projections. Markets were particularly interested in the rate projections from the FOMC members. For 2025, the median expectation still reflects two rate cuts, the same as the previous projection in the Mar meeting. While this might appear dovish at face value, the weighted average increased from 32 bps to 36 bps. Notably, seven members now anticipate no rate cuts this year.

For 2026, the median projection now indicates just one rate cut (down from two), although the weighted average remains unchanged from the previous reading.

Another notable projection was for Core PCE, which is expected to be 2.4% in 2026. A less discussed but important aspect of the projections is how the FOMC members assess the risks and uncertainty surrounding the unemployment rate and core PCE. The attached image shows that while high uncertainty persists, the perceived risks have marginally declined.

Press Conference:

The major highlight of the press conference was Chair Powell’s acknowledgment of the recent softer inflation readings. However, he emphasized caution, noting that it is forward-looking inflation that the FOMC is most concerned about, which is why they cannot base decisions solely on backward-looking data. He mentioned that uncertainty has reduced compared to the levels seen during the last meeting. Another point of interest—though subtle—was Powell not repeating the phrase “no need to rush on rate decisions.” Could this hint at a potential shift ahead of the September meeting? Otherwise, the press conference offered no new guidance. Powell kept his message simple and largely repetitive.