Investors Anticipate Fed’s Confirmation on Projected 3 Rate Cuts in 2024

Investors Anticipate Fed’s Confirmation on Projected 3 Rate Cuts in 2024

The Federal Reserve is widely expected to hold rates steady when the central bank concludes its policy meeting Wednesday afternoon.

But the bigger question on the minds of investors is whether policy makers still believe three interest rate cuts are likely in 2024.

The answer will come in the form of the Fed’s latest “dot plot,” a chart updated quarterly that shows the prediction of each Fed official about the direction of the federal funds rate.

In December, the dot plot revealed a consensus among Fed officials for three cuts for 2024, the first sign that the central bank was prepared to start loosening monetary policy.

Now that projection is in question following a string of hotter-than-expected inflation readings and cautious commentary from Fed officials.

Fed Chair Jay Powell and his colleagues have been emphasizing for months that they want to be sure inflation is moving “sustainably” down to their 2% target before starting cuts.

Investors Anticipate Fed’s Confirmation on Projected 3 Rate Cuts in 2024

Federal Reserve Chair Jerome Powell. REUTERS/Evelyn Hockstein/File Photo (Reuters / Reuters)

Investors have been adjusting their bets on when those cuts could start. After beginning the year predicting six cuts starting in March, they now expect three starting in June.

Even the odds of a June cut have been falling in recent weeks.

The Fed last hiked rates in July and has elected to keep interest rates unchanged since then in a range of 5.25%-5.50%, a 23-year high.

The Fed will announce its policy decision at 2 pm ET, followed by Chair Powell’s press conference at 2:30 pm ET.

Alongside the policy decision and rate projections, Fed officials will release updated forecasts on inflation, GDP growth, and unemployment.

Separately, investors will also be listening during Powell’s press conference for any discussion about how the Fed intends to slow the shrinking of its massive balance sheet, a lesser-known policy tool the central bank has been using to tighten financial conditions.

Over the last two years, the Fed has shed roughly $1.5 trillion in Treasury and mortgage bonds that it accumulated while trying to stimulate the economy during the early parts of the pandemic — letting roughly $100 billion mature every month and run off its balance sheet.

Now that inflation is coming down, the question is when the Fed could start slowing the pace of that run off.

What policymakers hope to avoid is the sort of messy upheaval to financial markets that happened the last time the Fed tried to wind down its balance sheet at the end of last decade.

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