Most market watchers believe Fed policymakers will dial their rate expectations back this week. The question is by how much.
Investors are on edge this week as Federal Reserve officials prepare to signal how many interest rate cuts are still likely in 2024.
"My expectation is the dots will show and confirm what I think the market has picked up, and that is fewer rate cuts with the inflation forecast holding."Fed Chair Jay Powell and his colleagues on the Federal Open Market Committee have been emphasizing they want to be sure inflation is moving "sustainably" down to their 2% target before starting cuts, and that in the interim they expect to hold rates higher for longer.
Prices aren’t accelerating as much as they were during the first quarter, but recent readings also don’t show enough progress for the Fed to start cutting.The year-over-year increase in the Fed’s preferred inflation gauge — the "core" Personal Consumption Expenditures index — was 2.8% in April, unchanged from March.
The September meeting is viewed by many as an optimistic case for cutting rates since the three inflation reports due out between now and then would all need to show improvement for the central bank to pull the trigger.Odds for a first cut in September fell to roughly 52% following the hotter-than-expected jobs report released Friday, and wagers for a second rate cut dwindled to little more than a 38% chance in December.
Wednesday will also bring other new Fed projections for investors to digest this week, as policymakers will also offer fresh forecasts for inflation, the economy and unemployment. "It's hard to say because if we continue to get the economic growth and the labor market strength that we've seen, I don't even know why they'd want to do one cut."
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