Wednesday’s Federal Open Market Committee meeting is unlikely to see interest rates cut just yet, but will provide key insight into central bankers’ thoughts on changes in coming months, analysts predict.
Indeed, the big question ahead of the event is whether Federal Reserve chairman Jerome Powell’s “slightly dovish tone [will] turn slightly hawkish,” as per Freedom Capital Markets strategist Jay Woods, with base interest currently at 5.5%.
“Given recent sticky inflation data, there could be a tone change that may go cautiously hawkish and provide the Fed some wiggle room if they had to mull a raise,” he said.
February saw US inflation jump 3.2%, following a 3.1% rise in January, with the Fed’s ultimate target sitting lower at a 2% annual increase in consumer prices.
Markets have all-but priced out expectations of a cut to interest in May as a result, with latest forecasts for a June reduction now being mulled.
Though Woods acknowledged that a new hawkish outlook was unlikely, such projections of a June rate cut have fallen to a 60% chance, from 80% just a month ago, he noted.
That said, Powell’s narrative that the US was “close” to cuts during a testimony to lawmakers earlier this month should stick, Wood continued.
Bank of America analysts echoed the sentiment, arguing that despite January and February’s price rises, the Fed would see broader disinflationary trends remaining.
Wednesday’s dot plot reading, which records each Fed member's outlook, should in turn continue to forecast three rate cuts in 2024.
“This may be fanciful thinking on our part, but there are several inflation reports and plenty of time between now and June to change course if needed,” the bank commented.