Federal Reserve Chairman Jerome Powell is shows on a screen behind a trader on the floor of the New … [+]
The Federal Reserve Open Market Committee is expected to cut interest rates at least once during its four remaining meetings of 2024. That’s according to the CME FedWatch Tool, which tracks the implied forecasts of fixed income markets.
The first interest rate cut may come in September and up to three cuts are possible in 2024, though two interest rate cuts are viewed as most likely, according to this implicit forecast of fixed income markets.
FOMC Meeting Schedule and Forecasts
The FOMC is now half way through its eight scheduled meetings of 2024. The remaining decision dates are scheduled for July 31, September 18, November 7 and December 18.
The September and December meetings will include an update to the Summary of Economic Projections. Policymakers use this to share specific economic forecasts, including estimates for the path of interest rates.
As of the Summary of Economic Projections on June 12, most policymakers anticipated one or two interest rate cuts in 2024, though a minority projected that rates would not change in 2024 from their current 5.25% to 5.5% range.
Economic Outlook
So far, the FOMC has taken a relatively cautious approach to any interest rate cuts. Speaking on June 12, Fed Chair Jerome Powell said of the future direction of interest rates: “Fortunately, we have a strong economy and we have the ability to approach this question carefully.” That’s, in part, because the jobs market despite some increase in unemployment from historically low levels, has remained relatively robust.
Reaction To CPI Inflation Reports
The most recent Consumer Price Index inflation report was generally viewed positively. Powell called it, “a step in the right direction” but also cautioned that it was “only one reading.” In addition, Powell noted on June 12, that ““I would say that today’s inflation report is encouraging, but it comes after several months that were not so encouraging.” Annual inflation stands at just under 3.5% as of the May 2024 report. That inflation rate is well down from peak levels in summer 2022. However, the FOMC is wary that its inflation target is 2% and wants to be sure that inflation is on a path to 2% before cutting interest rates.
Although inflation is key area of focus for the FOMC, unexpected significant weakening of the jobs market could also prompt cuts in interest rates. So far, is something the FOMC has been less concerned about, but they continue to watch for it in the data.
What To Expect
As inflation moves closer to the FOMC’s 2% goal, it is likely policymakers will start to cuts interest rates from current levels, which are viewed as restrictive. Of course, that assumes no unexpectedly high inflation reports, as we saw in the first quarter of 2024. These reports concerned policymakers perhaps pushed back potential interest rate cuts from earlier in the year.
On the other hand, a sharply weakening jobs market could prompt the FOMC to cut interest rates more aggressively. For now, the FOMC has some confidence in the jobs market as jobs data has remained relatively strong.
Overall, the current expectation is that the FOMC will start to cut interest rates in 2024. This may start with a cut on September 18, perhaps followed by one or two more at November or December FOMC meetings. There is still some prospect that interest rates remain unchanged in 2024, though that chance appears to be fading.