The Fed expects to withdraw 2024 rate calls after digesting new inflation data

Investors are looking to Federal Reserve officials this afternoon to pull back estimates of interest rate cuts in 2024.

Before policymakers go public with those projections, they get fresh inflation from the Consumer Price Index (CPI), which is expected to show continued moderation in May after an encouraging April.

The year-over-year change in the so-called “core” CPI – which excludes volatile food and energy prices that the Fed cannot control – is expected to fall by a tenth of a percentage point to 3.5%, compared with 3.6% in April. and 3.8% in March.

Still, the development is unlikely to change the Fed’s cautious stance, 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 chart updated quarterly showing each Fed official’s prediction of the direction of the federal funds rate.

In March, the dot plot revealed consensus among central bank officials for three cuts. That forecast is now in question following sticky inflation readings in the first quarter and cautious comments from central bank officials.

Most investors expect only one reduction from the six cuts expected earlier this year.

Fed officials will release new forecasts for inflation, the economy and unemployment on Wednesday.

FILE - Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, May 1, 2024. On Wednesday, June 12, 2024, the Federal Reserve will update its economic policy statement and wrap up its latest meeting with interest rate forecasts and Powell. (AP Photo/Susan Walsh, File)

Federal Reserve Board Chairman Jerome Powell. (AP Photo/Susan Walsh) (Associated Press)

To determine whether inflation is falling steadily toward the central bank’s 2% target, Fed Chairman Jay Powell has made clear that the central bank will need a quarter’s worth of data before cutting rates.

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Thus the September meeting is seen by many as a promising event for the first cut. For that to happen, both today’s inflation report and those in the coming months will need to show progress in central bank stimulus.

As of Tuesday, markets were pricing in a 48% chance the Federal Reserve will begin cutting rates at its September meeting. According to CME Group data.

The November and December meetings are seen by many Fed watchers as opportunities for the first cut.

The Fed will announce its policy decision at 2pm ET, followed by Powell’s press conference at 2:30pm ET.

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