Source: AFP
The US Federal Reserve is almost certain to keep its key lending rate steady for a fourth consecutive meeting on Wednesday as inflation continues to inch closer to its long-term target of 2%.
But analysts and traders will look beyond the headline – which is likely to remain unchanged – for any indication of how soon the US central bank could start cutting interest rates.
After inflation surged after the pandemic, the Fed quickly raised interest rates in an effort to bring inflation back to its two percent target — with surprising success.
In recent months, the Fed’s inflation target, which strips out volatile food and energy prices, recently fell below an annualized 3.0%, while economic growth remained strong at 2.5% in 2023 and unemployment remained near historic lows.
![](https://images.yen.com.gh/images/8d8096e3e2ce7346.jpg?impolicy=cropped-image&imwidth=256)
![](https://images.yen.com.gh/images/8d8096e3e2ce7346.jpg?impolicy=cropped-image&imwidth=256)
Read also
US Fed rate cuts are becoming a matter of when, not if
“The data to date has been surprisingly good,” KPMG chief economist Diane Swonk wrote in a blog post this week.
But despite the strong numbers, the Fed’s work remains unfinished. That’s why policymakers at the Federal Open Market Committee (FOMC) are widely expected to keep the central bank’s key lending rate unchanged on Wednesday at a 23-year high between 5.25 and 5.50 percentage points.
This week’s meeting should serve “to confirm that the FOMC has left behind its tightening bias and has begun to more aggressively debate rate cuts,” Deutsche Bank economists wrote in a note to clients.
Hints could come either in the rate decision itself or in Fed Chairman Jerome Powell’s press conference later in the day.
But Powell also needs to “be careful to temper his enthusiasm at the press conference so he doesn’t inadvertently spark a big rally in financial markets,” as happened after the last interest rate decision in December.
![](https://images.yen.com.gh/images/baf717088477cbd9.jpg?impolicy=cropped-image&imwidth=256)
![](https://images.yen.com.gh/images/baf717088477cbd9.jpg?impolicy=cropped-image&imwidth=256)
Read also
Asian stock rally fades despite Wall St records sparked by US data
‘Work Remaining’
Source: AFP
At its December meeting, the Fed raised its economic outlook for next year and indicated it expects rate cuts of up to three-quarters of a percentage point in 2024, sparking a wave of optimism in financial markets that the central bank could reduce interest rates. interest rates. just in March.
When the Fed cuts interest rates, American consumers typically have cheaper access to credit, meaning the cost of everything from auto loans to mortgages becomes cheaper, while company valuations are boosted.
In response, several senior FOMC officials poured cold water on the enthusiasm.
“We’re fully committed to restoring price stability and doing it naturally as gently as we can, but we have a lot of work to do,” San Francisco Fed President Mary Daly told Fox Business earlier this month.
And Atlanta Fed President Raphael Bostic told a conference that recent “unexpected progress” in the fight against inflation led him to raise his forecast for the start of rate cuts from the fourth quarter of this year to the third quarter.
![](https://images.yen.com.gh/images/6ad1f185294585df.jpg?impolicy=cropped-image&imwidth=256)
![](https://images.yen.com.gh/images/6ad1f185294585df.jpg?impolicy=cropped-image&imwidth=256)
Read also
US growth accelerates in 2023 in terms of jobs and consumer spending
“But the evidence will have to be convincing,” added Bostic, who, like Daly, is also a voting member of the Fed’s rate-setting committee.
March, May and beyond
Source: AFP
Heading into this meeting, traders and analysts were mostly split between those who believe economic conditions are such that the first rate hike will come in March and those who expect the Fed to be more cautious and move in May.
“We maintain our baseline expectation that the FOMC will begin an every-other-meeting cut cycle in March,” Barclays economists wrote in a recent investor note, adding that their forecast hinged on the Fed’s favored inflation measure continuing to be weak. .
Goldman Sachs Research also expects a decline in March, “mainly because progress on inflation is already sufficient,” chief U.S. economist David Mericle wrote in a recent note to clients.
Although futures investors were initially leaning toward a cut in March, they have recently scaled back their optimism and are now assigning a less than 50 percent chance the Fed will move then, according to AFP analysis of CME Group data.
![](https://images.yen.com.gh/images/2bbfbbfa4003f66f.jpg?impolicy=cropped-image&imwidth=256)
![](https://images.yen.com.gh/images/2bbfbbfa4003f66f.jpg?impolicy=cropped-image&imwidth=256)
Read also
Shanghai, Hong Kong rally on China stimulus hopes, Asian markets mixed
They are much more confident about the chances of a May cut, assigning a nearly 90% chance that the Fed will cut its key lending rate by at least 25 basis points on May 1.
“Our baseline remains no March FOMC cut in the absence of weaker activity, but a cut at the May 1 FOMC meeting looks increasingly possible,” Standard Chartered’s head of North America Macro Strategy Steve Englander wrote in a note to customers.
Source: AFP