The Federal Open Market Committee is expected to keep interest rates steady at its next meeting on June 12, based on fixed income futures and reports indicating a stall in disinflation progress from January to March 2024. However, the Federal Reserve is still expected to cut interest rates between one and three times in 2024, potentially due to inflation getting closer to the Fed’s 2% goal or a softening job market.
The upcoming release of Consumer Price Index inflation data for April on May 15 will be closely monitored by the FOMC. Projections suggest an increase in headline CPI inflation of 0.4% month-on-month, while excluding food and energy, the figure may be 0.3%. However, May’s CPI inflation data could show a decrease, particularly in energy costs, which might influence the Fed’s decisions on interest rates.
Despite the focus on inflation, employment data is becoming more relevant as inflation eases. Fed Chair Jerome Powell noted that with inflation below 3%, the employment goal is now in focus. If jobs data show significant weakness, the Fed may consider cutting interest rates to support its full employment goal. The recent softer-than-expected jobs report for April may raise concerns about the job market and potential wage pressures.
Market expectations for interest rates in 2024 are shifting, with a growing likelihood of lower rates. The CME’s FedWatch Tool indicates a 10% chance of a rate cut in June, 30% for July, and increasing likelihoods in the following months. Markets anticipate one to three rate cuts by December, with a small possibility that rates remain unchanged for the year. FOMC policymakers will update their projections for year-end interest rates at the June meeting, providing additional insight.
Despite expectations for interest rate cuts in 2024, it is currently unlikely that the FOMC will adjust rates at the June 12 meeting. The meeting will offer important updates on the Fed’s thinking, but incoming economic data on jobs and inflation may have a greater impact on future rate decisions. The broader range of outcomes for interest rates in 2024 highlights the uncertainties facing the FOMC in its efforts to manage inflation and support employment goals.
