WASHINGTON–The Federal Reserve will be wrapping up two days of meetings today during which analysts are expecting no changes in rates, even though the question will obviously be at the center of its agenda.
Instead, nearly all analysts expect the Fed’s Open Market Committee to adjourn by holding rates steady at 5.25%–5.50%, after which it will issue an updated policy statement this afternoon.
“The policy statement is unlikely to change much with a myopic focus on idiosyncratic inflation developments in Q1, and a lack of reference to expected inflation dynamics, the breadth of inflation and monetary policy transmission,” said EY in its analysis. “Even if some policymakers may favor removing the ‘lack of further inflation progress’ language, there is unlikely to be a consensus. We also don’t believe there will be a consensus around removing the negative conditionality statement for rate cuts (‘the Committee does not expect … until it has gained greater confidence’).”
The Dot Plot
“We anticipate the dot plot of median rate expectations will feature only one 25 basis points rate cut in 2024, down from three in the March and December dot plots,” EY forecast. “The dot plot will likely continue to show three expected rate cuts in 2025.”
What the Fed will announce, EY is forecasting, is that it will continue tapering the quantitative tightening program with adjusted redemption caps on Treasury securities at $25 billion per month and on agency mortgage-backed securities at $35 billion.
Separately, in its overview of the challenge in front of the Fed, the New York Times said the Fed will continue to wrestle with issue around the job market and broader economy, which continue to hold up even in the face of higher borrowing costs.
“And given that, the Fed has a safe play: Do nothing,” the Times said, agreeing with EY’s view. “Officials are expected to leave interest rates unchanged while avoiding any firm commitment about when they will cut them.”
Two Rate Cuts?
The Times further noted it expects the Fed to release a fresh set of economic projections that indicate central bankers now expect to make just two interest rate cuts in 2024, down from three when they last released forecasts in March. “Economists think that there is a small chance that officials could even predict just one cut this year. But whatever they forecast, officials are likely to avoid giving a clear signal of when rate reductions will begin,” the Times added.
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