The Federal Open Market Committee is expected to hold interest rates steady at the conclusion of its next meeting on June 12, that’s according to fixed income futures. Such a move is viewed as likely because progress on disinflation has largely stalled from January to March 2024 according to government reports.
However, additional economic data will come before the FOMC meets. The Federal Reserve is still expected to cut interest rates between one and three times in 2024. That’s potentially due to inflation trending closer to the Fed’s 2% goal, or because the job market softens.
Upcoming Inflation Data
At this point the FOMC is becoming particularly data dependent. Consumer Price Index inflation figures next released on May 15 for the month of April will be closely watched.
Nowcasts suggest that headline CPI inflation will rise 0.4% month-on-month, excluding food and energy the equivalent figure could be 0.3%. If that forecasts holds it won’t reassure FOMC policymakers on interest rate cuts.
However, looking further out, May’s CPI inflation data, reported on the morning of the Fed’s next interest rate decision might prove more encouraging. Nowcasts currently project an absolute decline in headline inflation for the month of May. That’s in part as certain energy costs have so-far declined in May, though it is early enough in the month that the trend could alter.
Additionally, shelter costs could bring lower inflation. However the timing and impact remains uncertain. Cooling shelter costs are something the Fed broadly expects, but doesn’t appear to want to preempt.
Unemployment Getting More Attention
However, it’s not solely about inflation figures as inflation is a little more subdued. Fed Chair Jerome Powell has noted that employment data becomes more relevant as inflation eases. “As inflation has come down, now to below 3 percent on a 12-month basis…we’re now focusing the other goal, the employment goal now comes back into focus. And so we are focusing on it.” Powell stated at his press conference on May 1.
This implies that if jobs data were expected to weaken significantly then the Fed may cut interest rates, even if inflation trend were less supportive of the decision. Such an interest rate cut, were it to occur, would likely be intended to support the FOMC’s full employment goal.
The jobs report for April was softer than many expected. It remains to be seen if there is sufficient concern around the jobs market to prompt interest rate cuts. Cooling employment may also provide some encouragement that wage pressure could ease, helping disinflation.
The Atlanta Fed’s Wage Growth Tracker has wage growth running at a 4.7% annual rate for March 2024. Wage growth appears to be declining but remains fairly elevated in a historic context.
Expectations For Interest Rates In 2024
Interest rates are expected to move lower in 2024, according to the CME’s FedWatch Tool, measuring the implied expectations of interest rate futures. Currently there’s just a 10% chance of an interest rate cut in June, but that rises to 30% for July and come September lower interest rates are more likely than not.
Still markets are also factoring in a 10% chance that rates aren’t cut in 2024 at all. In aggregate, markets anticipate the FOMC will most likely cut interest rates between one and three times by December. The range of outcomes remains relatively broad.
At the June 12 meeting FOMC policymakers will update their own projections for year-end interest rates. This will offer additional insight. On March 20, most FOMC policymakers forecast two or three cuts in 2024 according to the Summary of Economic Projections. However, inflation data has been somewhat more concerning since the FOMC’s March meeting and recent jobs data clouds the picture further.
It is currently unlikely that the FOMC elects to adjust interest rates at its next meeting on June 12. The meeting will provide an important update as to how the Fed is thinking about interest rate cuts in 2024. However, at this point, incoming economic data regarding jobs and inflation may increasingly matter more than FOMC statements.
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