US Markets
Tuesday, June 11th, 2024 6:25 pm EDT
Key Points
- Key Economic Indicators and Fed’s Response: Wednesday will feature crucial updates on inflation and the Federal Reserve’s policy response, beginning with the May consumer price index (CPI) report in the morning and concluding with the Fed’s policy meeting in the afternoon. These events will provide critical insights into the economic direction and whether the Fed will continue its current policy stance.
- Expected CPI Outcomes: The CPI for May is expected to show minimal month-over-month movement (0.1% increase), translating to an annual rise of 3.4%. Excluding food and energy, the core CPI is projected to increase by 0.3% monthly and 3.5% annually. These figures, although above the Fed’s 2% target, suggest a continuation of the disinflationary trend. The CPI report will be released at 8:30 a.m. ET on Wednesday.
- Fed’s Interest Rate Strategy and Economic Projections: The Fed is not expected to alter interest rates, keeping them within the 5.25%-5.50% range. Instead, the focus will be on the updated Summary of Economic Projections, particularly the “dot plot” indicating future rate expectations. Most economists predict an adjustment from the previously projected three interest rate cuts for 2024 to likely two, reflecting recent strong economic data, including wage growth and employment figures. The Fed is also anticipated to revise its GDP growth outlook downward and raise inflation projections.
Wednesday is poised to be a crucial day for economic news, with significant updates expected on inflation and Federal Reserve actions. The day starts with the release of the May consumer price index (CPI) and concludes with the Federal Reserve’s policy meeting, providing key signals about the economic outlook and potential policy adjustments.
The May CPI report is anticipated to show minimal month-over-month inflation, with a projected 0.1% increase from April, equating to an annual rise of 3.4%. Excluding food and energy, the core CPI is expected to show a 0.3% monthly gain and a 3.5% annual rate. Despite these figures still being above the Fed’s 2% target, some economists believe the broader disinflationary trend remains intact. However, the CPI is not the Fed’s primary metric; the central bank prefers the personal consumption expenditures price index, which offers a broader measure and considers changes in consumer behavior.
The Federal Open Market Committee (FOMC) will finalize its projections for inflation, GDP, and unemployment, as well as the expected interest rate path through 2026 and beyond. The consensus is that the Fed will maintain its benchmark overnight borrowing rate within the current range of 5.25%-5.50%. Instead, the focus will be on the Fed’s Summary of Economic Projections, particularly the “dot plot” indicating future rate expectations. The general expectation is a shift from the previously projected three interest rate cuts for 2024 to a likely two, though some economists speculate it could be reduced to just one.
Goldman Sachs economists predict two rate cuts starting in September, whereas other institutions like Bank of America and Citigroup have varying forecasts. The Fed is also expected to adjust its outlook for GDP growth downward and raise its inflation expectations from March’s projections.
In addition to the projections, the Fed’s post-meeting statement and Chair Jerome Powell’s news conference will be closely watched for any hints about future policy moves. Powell’s previous comments have downplayed the likelihood of further rate hikes, aligning with the recent market sentiment. Only a few Fed officials have publicly mentioned the possibility of raising rates further.
The market’s expectations have significantly shifted throughout 2024, initially anticipating six rate cuts but now bracing for a higher-for-longer rate scenario. The recent economic data, such as the strong nonfarm payrolls report and rising wages, support this outlook. The payroll report showed a 4.1% annual wage growth, exceeding the Fed’s preferred target of 3.3%, underscoring the challenges in achieving economic cooling without stifling growth.
Overall, Wednesday’s developments will provide critical insights into the Fed’s approach to managing inflation and economic growth, with significant implications for market participants and the broader economic trajectory.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/06/11/fed-meeting-and-inflation-report-both-hit-wednesday-and-the-impact-could-be-huge.html
