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The Fed's main message after tomorrow's rate decision will likely be that “policy needs more time, the next move will likely be a rate cut, and the board is in wait-and-see mode until the Fed gets more clarity on inflation,” according to Bank of America economists. .
They also foresee a slowdown in quantitative tightening by lowering the upper limit on monthly Treasury redemptions from $60 billion to $30 billion.
Reactions in interest rates and currencies are expected to be limited. “We suspect Powell is comfortable pricing this year's rate cuts in significantly,” the economists said, “and will likely find it difficult to 'hawk' the market.”
Since the beginning of the year, the Fed's hopes of relieving economic pressure with lower borrowing costs have faded. Inflation is on the rise again, and economists worry that the most persistent causes of price rises will become more difficult to mitigate. These unwelcome surprises have led forecasters to expect fewer rate cuts, possibly toward the end of the year.
Futures markets largely predict that there will be no change in interest rates at tomorrow's upcoming meeting. The Federal Open Market Committee (FOMC) has kept the federal interest rate target in the range of 5.25% to 5.50% since July 2023.
*This is not investment advice.