This week, investors are feeling anxious as Federal Reserve officials get ready to indicate the number of interest rate cuts that are probable in 2024. Many observers in the market anticipate that policymakers will lower their forecasts. The key question is the extent of this adjustment. The upcoming projection on Wednesday will be presented through a dot plot, a chart that is revised every quarter to display each Fed official's forecast regarding the movement of the federal funds rate.
In March, there was a general agreement among Federal Reserve officials for three rate cuts, as shown in the dot plot. However, this forecast is now uncertain due to persistent inflation figures, careful statements from Fed officials, and a stronger-than-anticipated job growth in the US labor market in May.
The Federal Reserve Chair Jay Powell and other members of the Federal Open Market Committee have been making it clear that they want to see inflation decrease steadily to their 2% target before considering any rate cuts. They also anticipate keeping interest rates elevated for an extended period in the meantime. It is anticipated that this position will remain unchanged this week, with officials widely expected to maintain the current high benchmark rate on Wednesday.
Due to the mixed signals from the latest data on inflation and the economy, policymakers are anticipated to remain vigilant. In May, the labor market saw a notable increase of 272,000 nonfarm payroll jobs, surpassing economists' expectations of 180,000. However, the unemployment rate also rose from 3.9% to 4%. While price acceleration has slowed compared to the first quarter, the current data does not indicate sufficient progress for the Fed to consider initiating rate cuts.
The core Personal Consumption Expenditures index, the Fed's preferred inflation measure, saw a year-on-year rise of 2.8% in April, the same as in March. Additionally, wages displayed resilience, surpassing expectations with a growth rate of 4.1% in May.