What are the expected outcomes from today’s Federal Reserve meeting?

Facing stubborn inflation that has raised concerns about monetary policy trends in the United States,
the Federal Reserve finds itself sticking to its stance on implementing a monetary tightening policy, which is likely to reflect in its decisions at the conclusion of its meeting on Wednesday.

Topic

Details

Lack of Confidence

One time Cut

Details:

Markets expect the Federal Open Market Committee, the policy-setting arm of the U.S. Federal Reserve,
not to announce any changes in interest rates.
This will maintain the overnight borrowing rate within a target
range of 5.25% to 5.5% for potentially months or even longer.

The only likely news from the meeting itself is the announcement
that the Federal Reserve will soon reduce the level at which it cuts its bond holdings on its balance sheet before completely ending a process known as “quantitative tightening.”

Beyond that, the focus will remain on interest rates and the central bank’s reluctance to move away from its current policy stance.

Lack of Confidence

Officials, from Chair Powell to the regional Federal Reserve presidents across the U.S., have reiterated that they do not expect to start cutting interest rates until they are more confident that inflation is moving in the right direction and heading back towards the annual target of 2%.

Powell surprised the markets two weeks ago with firm remarks on how committed he and his colleagues are to achieving this mandate.
He said at a central bank conference, “We in the Federal Open Market Committee have said that we need more confidence that inflation is sustainably moving towards 2% before it would be appropriate to ease the policy.”

Powell continued, “Clearly, recent data have not given us more confidence and instead suggest that it may take longer than expected to achieve this confidence.”

The markets have held up well since Powell made these remarks on April 16, despite a stock sell-off on Tuesday before the meeting. The personal consumption expenditures price index released last week shows an inflation rate of 2.7% annually, or 2.8% for the crucial core measure that excludes food and energy. U.S. Federal officials prefer the Commerce Department’s index as a gauge of inflation, focusing more on the core as a better indicator of long-term trends.

Further data on Tuesday supported a tightening policy when the Department of Labor said that the employment cost index had risen by 1.2% in the first quarter, an increase of 0.3 percentage points from the previous period and above Wall Street’s expectations of 1%.

These figures do not align with the Fed’s target and are likely to lead Powell to urge caution about the direction of monetary policy based on this data, meaning no cuts in interest rates anytime soon.

One time Cut

Meanwhile, the pricing in the futures market indicates only a 50% chance of an interest rate cut as early as September, and according to current forecasts, only one cut of a quarter percentage point is expected by the end of 2024, according to the FedWatch tool.

However, pessimism is not universal, and some on Wall Street still hope that inflation data will show progress and allow the central bank to reduce interest rates.

What are the expected outcomes from today’s Federal Reserve meeting?

What are the expected outcomes from today&#8217;s Federal Reserve meeting?

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What are the expected outcomes from today’s Federal Reserve meeting?