According to the minutes from the Federal Open Market Committee meeting on June 13 and 14, almost all participants noted that it was appropriate to maintain the Fed funds rate at the current range of 5.00% to 5.25%. Participants noted that economic growth has been resilient in recent quarters, but inflation remains elevated. FOMC members also noted that banking stresses had receded and conditions in the banking sector were much improved since early March. 

There were disagreements about the monetary policy decision at the meeting on June 13 and 14 as “some participants favored raising the target range for the federal funds rate by 25 basis points.” However, almost all the participants “judged it appropriate or acceptable to maintain the target range for the federal funds rate at 5 to 5¼%.” Some participants pointed out that economic growth may not be as strong as indicated by recent economic data releases – “Of those who noted the discrepancy between GDP and GDI, most suggested that economic momentum may not be as strong as indicated by GDP readings.” Some participants also noted that employment growth this year may have been weaker than indicated by payroll employment given the weaker readings by other measures of employment such as the Quarterly Census of Employment and Wages, the BLS’s household survey, and the Board staff’s measure of private employment using data from ADP. 

Participants noted that inflation was unacceptably high and core goods inflation (excluding food and energy) had slowed less than expected in recent months despite easing supply chains. Participants noted that wage growth had slowed but was still running at a pace above consistent with the Committee’s 2% objective. Federal Reserve staff continue to expect tight financial conditions to lead to a mild recession later this year, followed by a moderately paced recovery. 

PNC expects the FOMC to maintain the fed funds rate in its current range of 5.00% to 5.25% through the rest of this year. PNC’s baseline forecast calls for a mild recession starting in late 2023 or early 2024, with a small contraction in real GDP of less than 1%, lasting into mid-2024. The unemployment rate will increase in the second half of this year, ending 2023 at above 4%, and then peak at slightly above 5% in early 2025. Slowing inflation and a deteriorating labor market will lead to Federal Reserve cuts starting in 2024.

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