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Rate Cuts To Follow Inflation Rise If The Fed Provides More Insight

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Rate Cuts To Follow Inflation Rise If The Fed Provides More Insight

(CTN News) – In its long-running fight against inflation, the Federal Reserve is widely expected to hold its key lending rate at the same level on Wednesday as policymakers continue to discuss when to start cutting rates.

Rates have been raised by the Federal Reserve to a 23-year high, aiming to return inflation to its long-term target of two percent. As the US has seen a small increase in monthly inflation this year, it has been more difficult to combat rising prices compared to last year.

However, despite higher rates, unemployment remains low, wage growth eases, and economic growth for the final quarter of 2023 is above expectations — all indications that the US economy remains healthy.

On Wednesday, the Fed will publish an updated summary of economic projections (SEP) alongside its rate decision, containing policymakers’ projections for where interest rates will be at year’s end.

Wells Fargo senior economist Michael Pugliese told AFP that disinflation, along with employment growth, are not happening as quickly as previously expected. As a result, their policy outlook will be fine-tuned.”

How about two instead of three?

Policymakers penciled in three interest rate cuts for 2024 as the Fed eases monetary policy while pushing inflation towards its long-term goal. It’s unlikely that the March update will show a significant shift, although some analysts see a chance that policymakers could reduce the number of cuts expected in 2013.

According to Pugliese, Wells Fargo still anticipates three Fed rate cuts in 2024. It predicted four rate cuts for 2018 in its own forecast.

In Wednesday’s meeting, policymakers may lower rather than raise expectations for rate cuts, he said.

There is a risk of two rate cuts instead of three, says Lydia Boussour, senior economist at EY.  According to her, inflation data are noisy and some surprises are on the upside. Some Fed officials might adopt a bit more of a hawkish stance.”

Inflation will cut in an uncertain direction –

Fed officials have urged caution in recent weeks about cutting interest rates too quickly, and instead will follow a “data-dependent” path instead. “The economic outlook is uncertain, and progress toward our two percent inflation target is uncertain,” Powell said earlier this month.

As of this year, he still expects cuts to begin. Based on CME Group data, futures traders predict that the Fed will start cutting interest rates by June 12.

The Fed has made a significant shift since its last rate decision in January, when traders widely expected the first rate decision in May.  Nationwide has moved the date back to June, instead of May, Kathy Bostjancic told AFP. I think July if it is not June.”

‘I think they’re really going to wait and see, and wait for more data to make that move,’ said Boussour of EY, who also expects the Fed to cut rates in June.

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