The Fed’s last economic projections were revealing. Compared with December, US central bankers expected a brighter outlook for real gross domestic product (GDP) growth this year but more persistent core inflation. Policymakers stressed that they needed more evidence that inflation was returning sustainably to the 2 per cent target, and issued projections suggesting that rates would fall from 5.25-5.5 per cent to 4.6 per cent by the end of the year.
After yet another higher than expected inflation reading, markets now anticipate even less easing. According to the CME FedWatch tool, traders have placed their bets on a first cut in September, with between 0.25 and 0.5 percentage points of cuts in 2024.
Since the Fed only issues economic projections at alternate meetings, chair Powell’s comments at the press conference next week will be closely watched. Look out for statements on the supply side of the economy (particularly whether a strong jobs market can be consistent with slowing inflation).