Jerome Powell, chairman of the US Federal Reserve, during a news conference following a Federal Open ... [+]
The Federal Open Market Committee is expected to hold interest rates steady at the conclusion of its next meeting on June 12, according to fixed income futures. This 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. The Consumer Price Index for April will be released on May 15 for the month of April and those inflation figures will be closely watched.
Nowcasts suggest headline CPI inflation will rise 0.4% month-on-month; excluding food and energy, the equivalent figure could be 0.3%. If that forecast holds, it won’t reassure FOMC policymakers on interest rate cuts.
However, looking further out, May’s CPI inflation data will be reported on the morning of the Fed’s next interest rate decision. This release might prove more encouraging. Nowcasts currently project an absolute decline in headline inflation for May. That’s in part as certain energy costs have declined so far in May, though it is early enough in the month that the trend could change.
Additionally, shelter costs could bring lower inflation. However, the timing and impact remain uncertain. Cooling shelter costs are something the Fed broadly expects, but doesn’t appear to want to preempt.
Unemployment Is Getting More Attention
However, it’s not solely about these 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% on a 12-month basis.”
“We're now focusing the other goal.” Powell stated at his press conference on May 1. “The employment goal now comes back into focus.”
This implies that if jobs data were expected to significantly weaken, then the Fed may cut interest rates, even if the 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, which helps create disinflation.
The Atlanta Fed’s Wage Growth Tracker has this figure 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, which measures 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 interest rates aren’t cut in 2024 at all. In aggregate, markets anticipate the FOMC will most likely cut 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 further clouds the picture.
It is currently unlikely that the FOMC elects to adjust interest rates on June 12. This next meeting will provide an important update as to how the Fed is thinking about rate cuts in 2024. However, at this point, incoming economic data regarding jobs and inflation may increasingly matter more than FOMC statements.
