Federal Reserve Chairman Jerome Powell appears on a screen behind traders on the floor of the New York Stock Exchange. [+] The New York Stock Exchange, Wednesday, June 12, 2024. (AP Photo/Richard Drew)
Copyright 2024 The Associated Press. All rights reserved.
The Federal Reserve's Open Market Committee is expected to cut interest rates at least once in its four remaining meetings in 2024, according to the CME FedWatch tool, which tracks implicit expectations in the bond market.
The first rate cut could come in September, with up to three cuts possible in 2024. But two rate cuts seem most likely, according to the bond market's implicit forecast.
FOMC Meeting Schedule and Forecast
The FOMC is currently halfway through its eight scheduled meetings in 2024. Remaining decision dates are scheduled for July 31, September 18, November 7, and December 18.
The September and December meetings see the release of updated Summary of the Economic Outlook, which policymakers use to share specific economic forecasts, including projections for the evolution of interest rates.
As of the June 12 Economic Outlook Summary, most policymakers expected one or two rate cuts in 2024. A minority of FOMC members expected interest rates to remain unchanged in 2024 from the current range of 5.25% to 5.5%.
Economic outlook
So far, the FOMC has been relatively cautious in lowering interest rates. On June 12, Fed Chairman Jerome Powell said about the future direction of interest rates, “Fortunately, our economy is in good shape, and we have the ability to approach this issue cautiously.” One reason for this is that the labor market has remained relatively strong, even as the unemployment rate has risen slightly from historically low levels.
Reaction to the CPI inflation report
The latest Consumer Price Index inflation report was generally well received. Powell called it a “step in the right direction,” but also warned that “this is just one indicator.” Additionally, Powell noted on June 12 that “Today's inflation report is encouraging, but it comes after several months that were not as encouraging.” As of the May 2024 report, the annual inflation rate is just below 3.5%. This inflation rate is down significantly from its peak level in the summer of 2022. However, the FOMC is wary of its 2% inflation target and wants to make sure inflation is at that level before lowering interest rates.
While inflation is a key focus for the FOMC, a significant, unexpected weakening of the labor market could also prompt a rate cut. So far, the FOMC has not been too concerned about this, but policymakers continue to keep a close eye on the data.
What to expect
As inflation approaches the 2% target, the FOMC is likely to begin lowering interest rates from current levels that are viewed as restrictive. Of course, this assumes that there are no unexpectedly high inflation reports like those seen in the first quarter of 2024, which may have spooked policymakers enough to postpone potential rate cuts earlier this year.
On the other hand, if the labor market weakens sharply, the FOMC may cut interest rates more aggressively. For now, employment data has been relatively strong, giving the FOMC some confidence in the labor market.
Overall, the FOMC is expected to begin cutting interest rates in 2024, starting with a cut on September 18th, followed by perhaps one or two more cuts at the November or December FOMC meeting. There is still a chance that rates will remain on hold in 2024, but that likelihood appears to be diminishing.