Investors this afternoon are bracing for Federal Reserve officials to roll back estimates of rate cuts in 2024.
Before making these forecasts public, policymakers will be provided with a new inflation reading from the Consumer Price Index (CPI), which is expected to show continued moderation in May after an encouraging month of April.
The year-over-year change in the so-called “core” CPI — which excludes volatile food and energy prices over which the Fed has no control — is expected to fall by a tenth of a percent to 3.5%, down from 3.6 % in April and 3.8% in March.
Still, this improvement is unlikely to change the cautious stance of the Fed, which is widely expected to keep rates steady at a 23-year high at its policy meeting today.
It will release a new projection of 2024 rate cuts in the form of a so-called “dot plot,” a graph updated quarterly 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 on three cuts. Now that projection has been called into question after a string of persistent inflation data during the first quarter and cautious commentary from Fed officials.
Most investors now expect just one cut, down from the six cuts they expected at the start of the year.
Fed officials will also release new forecasts for inflation, the economy and unemployment on Wednesday.
Fed Chairman Jay Powell has made clear that before cutting rates, the Fed will need more than a quarter’s worth of data to assess whether inflation is steadily falling toward the central bank’s 2% target.
That is why the September meeting is seen by many as an optimistic argument for a first cutback. To do that, today’s inflation report and the two to follow in the coming months would likely need to show improvement before the central bank pulls the trigger.
As of Tuesday, markets had priced in a roughly 48% chance that the Federal Reserve would cut rates at its September meeting, data from CME Group showed.
The November and December meetings are seen by many Fed watchers as more likely opportunities for a first rate cut.
The Fed will announce its policy decision at 2:00 PM ET, followed by Powell’s press conference at 2:30 PM ET.
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