FOMC Meeting Today: When will Federal Reserve begin rate cuts? – Investing Abroad News

Today, the US Federal Reserve will make its monetary policy announcement. The Federal Open Market Committee (FOMC) meeting is underway March 19–20. On Wednesday, March 20 at 2:00 PM ET, Fed Chair Powell will make the Fed’s final announcement.

With inflation remaining sticky, markets expect the Fed to keep the ‘fed funds rate’ target range unchanged at 5.25% – 5.50%. Although the Federal Reserve hasn’t changed interest rates since July 2023, a lot of investors believe that the Fed will soon switch to lowering them.

“The March FOMC meeting is likely to bring little by way of changes to the Fed’s broad policy stance, nor to the Committee’s guidance on the policy outlook, as policymakers continue to see additional confidence that inflation is well on its way to returning to the 2% target. Nevertheless, as disinflation continues, and the labour market softens, rate cuts remain likely this year, with the first still pencilled in for June,” says Michael Brown Market Analyst at Pepperstone.

The March 20 FOMC meeting will also be associated with a Summary of Economic Projections that will carry the ‘dot plots’ indicating the path forward for the rates.

Reliance Securities notes – “The focus isn’t on Wednesday afternoon’s decision for interest rates, but on what may happen months from now. The question is whether it will lower rates in June as the bond market currently expects, and how many cuts to expect in 2024.

Hints about the timing and scope of rate cuts could come from the Fed’s so-called dot plots, a quarterly visual depiction of individual officials’ economic and interest rate forecasts. In December, the median Fed forecast called for 3 rate cuts in 2024. However, we believe that the Fed could dial down from the current 3 rate and could provide a 2-rate cut scenario on the back of sticky inflation despite the economy staying strong.”

Fed Chief Powell’s comments will also be watched closely. Earlier this month, in his Testimony, Powell cited that the Fed is ready to cut rates only when economic data is supportive. Any clues to rate cuts will be taken positively by the market but any talk of a ‘higher-for-longer’ regime could backfire. The first-rate cut is expected to be in June.

“We anticipate a potentially more hawkish bias at this FOMC meeting compared to consensus estimates. There is a possibility that the median projection may suggest two rate cuts this year instead of three. Additionally, any indication that the terminal rate in 2026 might be higher than previous estimates could lead to a sharp increase in longer-term yields,” says Amit Goel, Co-Founder and Chief Global Strategist at Pace 360.

José Torres, Senior Economist at Interactive Brokers raises other key points – “Next week provides another opportunity for Powell to redeem himself against the backdrop of inflation. Will he throw the old-fashioned Jackson Hole slider, or will he pull a NASCAR-style, Washington D.C.-U-turn. Will he continue to support the interests of Wall Street, or will he acknowledge that accelerating inflation is painfully damaging to Main Street?

Even with four consecutive months of CPI increases, investors are anticipating that the central bank will cut rates in June and make an additional two cuts by year-end. A few other hot reports are likely to push back the first rate cut to July, extending our journey across the monetary policy bridge.”

There are other industry voices as well that talk of a late rate cut. “For the data-dependent Fed, recent inflation reports are not helpful for a market that demands a 2024 rate cut”, says Quincy Krosby, Chief Global Strategist for LPL Financial.

Robust consumer demand, higher wages and a strong job market are against the Fed’s timing for the first rate cut. Larry Tentarelli, Chief Technical Strategist, Blue Chip Daily Trend Report says, “In our view, unless inflation starts to drop and come in below forecast, most notably CPI and Core PCE, then we expect the Fed to take a patient and measured approach to any potential rate cuts. If there is any notable weakness in the jobs market, that would increase the chance of a Fed rate cut by June.”

Financial historian and senior investment advisor Mark J. Higgins pens down his thoughts on the FOMC rate action:

“At the end of the day, the dual mandate of the Federal Reserve is to maintain maximum employment and price stability. With unemployment at 3.9% and inflation remaining well above the 2% target, it seems clear that addressing price stability is the greater priority.

This being the case, financial history strongly suggests that the primary risk that the FOMC faces is prematurely abandoning tight monetary policy.

The reason is that elevated levels of inflation have persisted for roughly three years and, although labor markets have improved, they remain tight.

Thus far, inflation expectations remain in check, but if the FOMC loosens policy too early and inflation reignites, they risk damaging their credibility and allowing inflation expectations to rise.

This was the error the Fed made on multiple occasions in the late 1960s and 1970s, and it was a big driver of the Great Inflation

If the FOMC is serious about re-establishing price stability at the 2% level – and I believe that at least most of them are – their primary goal should not be to ‘orchestrate a soft landing;’ rather it should be to ‘avoid bouncing off the runway.’ Because if they do bounce off the runway, the second landing will be much harder and painful for the passengers.

For all of these reasons, the lessons of financial history suggest that the FOMC will tilt toward a more hawkish position than most market participants hope.”