With recent inflation gauges all but ruling out the likelihood of a summer rate cut in the US, central bank watchers will be focused on the post-decision statement and Fed Chair Jerome Powell’s press conference for clues as to when or more pertinently if the Federal Open Market Committee (FOMC) will choose to lower borrowing levels this year.
An economists’ poll said Fed rate setters will vote unanimously to hold the target range for the federal funds rate at 5.25% to 5.50% on Wednesday.
JP Morgan’s Michael Feroli noted that with the absence of a new dot plot, “We believe the post-meeting statement will be little changed from the one released after the previous meeting in March. Instead, we expect the most interesting development will be the press conference, where we expect chair Powell’s opening remarks will echo the ones given last week when he offered that first quarter inflation data haven’t increased the Fed’s confidence of getting back to 2% inflation.”
Sticky inflation shifts rate cut outlook
Heading into this week’s FOMC meeting, data appeared to have convinced market participants that the chances of a June cut had all but disappeared following the latest growth and inflation reports from the US.
On Friday, the PCE deflator component of the March Personal Income and Outlays report showed a 0.3% m/m rise for both the headline and core readings in line with forecasts. Annually, prices gained 2.7% and 2.7% respectively, both a tenth above expectations.
“The March post-meeting statement was only lightly changed from the January statement, and we similarly expect very few edits in next week’s statement,” Feroli posited. “One might argue that 1.6% GDP growth isn’t activity ‘expanding at a solid pace,’ though we think the committee will see the still-solid growth in final sales last quarter as a reason to leave that description unchanged.”
Several analysts have ventured that the tone of the statement could become a little more hawkish to match the ongoing flow of stronger-than-expected data on the economy.
Barclays’ Marc Giannoni said, “With firm inflation lowering the FOMC's confidence that inflation is moving sustainably toward 2%, we expect Powell to signal the FOMC may be on hold for longer than expected.”
The analyst was referencing comments from the Fed chair at a panel discussion in Washington on 17 April, where Powell noted, “The recent data have clearly not given us greater confidence and instead indicate that is likely to take longer than expected to achieve that confidence.”
More observers ready for fewer rate reductions this year
Barclays’ Giannoni said, “We retain our baseline call that the FOMC will deliver just one 25 basis point rate cut this year, in September at the soonest. However, if inflation comes in stronger than in our baseline, we would expect the first rate cut to be postponed to December. We view this as almost as likely as our baseline scenario.”
This sentiment was shared by Daiwa America’s Lawrence Werther, who said he anticipated that the message from the policy statement and Powell’s post-meeting press conference would likely have a hawkish tone. “While we will have to wait until June for updated economic projections and dot plot charts, Powell is likely to restate that the case for a rate cut has diminished.”
Beyond the rate announcement, Werther posited that Powell might acknowledge internal discussions on potential adjustments to quantitative tightening (QT), with the minutes from the March FOMC meeting suggesting a desire to halve the pace of redemptions, currently USD60 bln for Treasury securities and up to USD 35bln per month for agency debt and agency MBS.
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- Fed expected to hold main rate in 5.25-5.50% range
- Stalled inflation pushes back rate cut bets
- Officials could signal impending QT adjustments
- Decision due Wednesday at 18:00 GMT / 14:00 EST
- Press conference scheduled for 18:30 GMT / 14:30 EST
By Harry Daniels
LiveSquawk News
@HarryDaniels71
29 April 2024 | 15:30 GMT
With recent inflation gauges all but ruling out the likelihood of a summer rate cut in the US, central bank watchers will be focused on the post-decision statement and Fed Chair Jerome Powell’s press conference for clues as to when or more pertinently if the Federal Open Market Committee (FOMC) will choose to lower borrowing levels this year.
An economists’ poll said Fed rate setters will vote unanimously to hold the target range for the federal funds rate at 5.25% to 5.50% on Wednesday.
JP Morgan’s Michael Feroli noted that with the absence of a new dot plot, “We believe the post-meeting statement will be little changed from the one released after the previous meeting in March. Instead, we expect the most interesting development will be the press conference, where we expect chair Powell’s opening remarks will echo the ones given last week when he offered that first quarter inflation data haven’t increased the Fed’s confidence of getting back to 2% inflation.”
Heading into this week’s FOMC meeting, data appeared to have convinced market participants that the chances of a June cut had all but disappeared following the latest growth and inflation reports from the US.
On Friday, the PCE deflator component of the March Personal Income and Outlays report showed a 0.3% m/m rise for both the headline and core readings in line with forecasts. Annually, prices gained 2.7% and 2.7% respectively, both a tenth above expectations.
“The March post-meeting statement was only lightly changed from the January statement, and we similarly expect very few edits in next week’s statement,” Feroli posited. “One might argue that 1.6% GDP growth isn’t activity ‘expanding at a solid pace,’ though we think the committee will see the still-solid growth in final sales last quarter as a reason to leave that description unchanged.”
Several analysts have ventured that the tone of the statement could become a little more hawkish to match the ongoing flow of stronger-than-expected data on the economy.
Barclays’ Marc Giannoni said, “With firm inflation lowering the FOMC's confidence that inflation is moving sustainably toward 2%, we expect Powell to signal the FOMC may be on hold for longer than expected.”
The analyst was referencing comments from the Fed chair at a panel discussion in Washington on 17 April, where Powell noted, “The recent data have clearly not given us greater confidence and instead indicate that is likely to take longer than expected to achieve that confidence.”
Barclays’ Giannoni said, “We retain our baseline call that the FOMC will deliver just one 25 basis point rate cut this year, in September at the soonest. However, if inflation comes in stronger than in our baseline, we would expect the first rate cut to be postponed to December. We view this as almost as likely as our baseline scenario.”
This sentiment was shared by Daiwa America’s Lawrence Werther, who said he anticipated that the message from the policy statement and Powell’s post-meeting press conference would likely have a hawkish tone. “While we will have to wait until June for updated economic projections and dot plot charts, Powell is likely to restate that the case for a rate cut has diminished.”
Beyond the rate announcement, Werther posited that Powell might acknowledge internal discussions on potential adjustments to quantitative tightening (QT), with the minutes from the March FOMC meeting suggesting a desire to halve the pace of redemptions, currently USD60 bln for Treasury securities and up to USD 35bln per month for agency debt and agency MBS.