(Washington) How many rate cuts does the Fed anticipate in 2024? The update of economic forecasts will be the highlight of the U.S. central bank’s meeting, which ends Wednesday and is expected to see rates stay where they are, while inflation fell in May.
One thing is almost certain: the main key rate of the American central bank (Fed) should remain in the range of 5.25% to 5.50% in which it has been since last July, its highest level in more 20 years old.
“The FOMC (Monetary Committee) resumed its meeting at 9:15 a.m. as scheduled,” a Fed spokesperson told AFP on Wednesday.
The members of the Fed’s monetary policy committee (FOMC) are cautious, after a rebound in inflation in early 2024. Because they want to avoid a new surge in prices.
However, positive news arrived Wednesday morning, just before they resumed their discussions started the day before: inflation slowed in May.
The CPI inflation index, on which pensions are indexed, stood at 3.3% over one year compared to 3.4% in April, the Labor Department announced.
And over one month, prices remained identical to those in April: the change in the consumer price index was 0%, compared to 0.3% the previous month.
“This data will have no impact on the outcome of today’s FOMC meeting,” nevertheless warns Rubeela Farooqi, chief economist for High Frequency Economics.
Fed officials “need to see more than a month of slowdown, showing a sustainable path toward (its) 2% target, before cutting rates this year,” she said.
The PCE index, the measure favored by the Fed, remained stable in April at 2.7% year-on-year. The May figures will be published at the end of June.
Thus, while “no surprises are expected for rates”, it is the economic forecasts which will be “at the center of attention”, specifies Rubeela Farooqi.
Forecasts on GDP (Gross Domestic Product) growth, inflation and unemployment will be updated, but also and above all the number of rate cuts envisaged in 2024 by each of the 12 members of the FOMC. In March, when they last updated, they anticipated three.
Market players mainly expect two declines in 2024, according to CME Group forecasts.
The inflation figures published on Wednesday seem to have convinced them that the Fed will launch the movement in September, and no longer in November, which many of them were still anticipating on Tuesday.
But the Federal Reserve is walking a tightrope. If it starts lowering its rates too late, it risks causing economic activity to slow down too much, which could compromise the healthy health of the American job market.
“The strength of the labor market allows the Federal Reserve to wait for better news on inflation before signaling a rate cut,” said Ryan Sweet, economist for Oxford Economics.
He cautions, however: The Fed “should not take this strength for granted.”
The Federal Reserve is independent of political power, but its decisions have significant consequences on the American economy.
And, in the midst of the presidential election campaign, the Democratic Party of President Joe Biden, who hopes to be re-elected, does not want to see the Fed’s measures curb the healthy health of the job market.
Two Democratic congressmen sent a letter to Fed Chairman Jerome Powell on Monday, warning that “excessively restrictive monetary policy could endanger the strong job market” in the United States.
“By lowering rates now, we are ensuring that we do not cause unnecessary and harmful economic damage,” Sen. Sheldon Whitehouse and Rep. Brendan Boyle wrote in their letter.
Especially since the Republican candidate, Donald Trump, constantly highlighted the strength of the economy when he was president.
