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Fed expects to cut 2024 rate calls after digesting new inflation data
Investors are bracing for Federal Reserve officials this afternoon reduce estimates of interest rate cuts in 2024.
Before policymakers make these predictions public, they obtain a new inflation reading of the Consumer Price Index (CPI), which is expected to show continued moderation in May, after an encouraging April.
The annual change in the so-called “core” CPI – which excludes volatile food and energy prices that the Fed cannot control – is expected to fall by a tenth of a percent to 3.5%, compared with 3.6% in April. and 3.8% in March.
However, this improvement is unlikely to alter the Fed’s cautious stance, which is widely expected at its policy meeting today to keep rates stable at a 23-year high.
He will release a new projection on rate cuts in 2024 in the form of a so-called “dot plot,” a quarterly updated graph that shows each Fed official’s forecast for the direction of the federal funds rate.
In March, the dot plot revealed a consensus among Fed officials for three cuts. Now that projection is in question, following a series of tough inflation readings during the first quarter and cautious comments from Fed officials.
Most investors now expect just one cut, down from the six cuts expected at the start of the year.
Fed officials will also release new forecasts for inflation, the economy and unemployment on Wednesday.
Chairman of the Federal Reserve Board, Jerome Powell. (AP Photo/Susan Walsh) (ASSOCIATED PRESS)
Fed Chairman Jay Powell has made clear that before cutting rates, the Fed will need more than a quarter of data to assess whether inflation is falling steadily toward the central bank’s 2% target.
Thus, the September meeting is seen by many as an optimistic argument for a first cut. For that to happen, today’s inflation report and the two that follow in the coming months would likely need to show improvements before the central bank could pull the trigger.
On Tuesday, markets were forecasting a roughly 48% probability that the Federal Reserve would begin cutting rates at its September meeting, according to data from CME Group.
The November and December meetings are seen by many Fed watchers as the most likely opportunities for a first cut.
The Fed will announce its policy decision at 2pm ET, followed by Powell’s press conference at 2:30pm ET.
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