PNC economists provide insight into key indicators that may have an impact on current business performance and the path ahead.

Federal Funds Rate Remains Unchanged

  • The Federal Open Market Committee (FOMC) kept the fed funds rate unchanged in a range between 5.25% and 5.50% in its May 1 policy statement. The FOMC maintained a loosening bias, but rate cuts do not appear imminent. The statement says that "the Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%."
  • The statement also provided an update on the process of balance sheet reduction, or quantitative tightening (QT). Starting in June, the Federal Reserve will let $25 billion of Treasurys roll off the balance sheet per month, down from $60 billion currently. The Fed will still allow up to $35 billion of mortgage-backed securities to roll off per month and wants to move its portfolio back to mostly Treasury securities. The Fed is unsure of the proper size of the balance sheet in the long run, and slowing the pace of QT will give the central bank more flexibility in calibrating the optimal size.
  • The May FOMC statement was largely as expected. The committee still wants to cut the fed funds rate but is holding off for now until it is sure that the reacceleration in inflation will reverse. This is consistent with PNC's baseline forecast for 25 basis point reductions in the fed funds rate at the July and November FOMC meetings, which would take the rate to 4.75% to 5.00% at the end of 2024. PNC then expects a few additional rate cuts in 2025 as inflation further slows.  

Employment

  • The U.S. economy added 175,000 jobs in April, according to a survey of employers from the Bureau of Labor Statistics. This is somewhat below the recent pace, and the smallest number of jobs added since November, but is still solid. Job gains in March were revised higher to 315,000 from 303,000, while February job growth was revised lower to 236,000 from 270,000.
  • Over the past three months the economy has added an average of 242,000 jobs per month, which is above the economy’s long-term potential. This is very close to the 2023 average of 250,000 jobs per month.
  • The unemployment rate has now been below 4% for 27 straight months, the longest such stretch since the late 1960s. The unemployment rate increased slightly to 3.9% in April from 3.8% in March; it has been between 3.7% and 3.9% since August.
  • Average hourly earnings rose a modest 0.2% over the month, after increasing 0.3% in March after revisions. This is welcome news for the Fed, which remains concerned about wage growth that is running too hot to achieve the central bank’s 2% inflation objective.

Ready to Help

PNC economists provide analyses and forecasts of national, regional, and global economic and financial trends. For more economic data and reports, visit www.pnc.com/economicrelease.

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