Inflation Report and the Fed: Live Announcements

Federal Reserve officials are expected to leave interest rates unchanged on Wednesday, but investors and economists will be watching closely for clues as to when policymakers might begin to cut borrowing costs.

Central bankers have kept rates at 5.3 percent since July after a rapid series of hikes starting in early 2022. Policymakers had hoped to cut rates by 2024, but inflation has been surprisingly stubborn, delaying those cuts.

At the end of their two-day meeting on Wednesday, central bank officials will release economic forecasts for the first time since March, updating how many rate cuts they expect this year. Economists expect policymakers to forecast two cuts by the end of the year, down from three previously. There is even a small chance that the authorities will present a single tariff reduction.

Regardless, central bankers are likely to remain silent on one important question: When will they start cutting borrowing costs? Policymakers are not expected to cut rates in July, meaning there will be months of data before the next meeting on September 17-18. With that in mind, officials will try to keep their options open.

“It will be a message of patience, as simple as that,” said Yelena Shulyatyeva, senior US economist at BNP Paribas. “We want to make sure inflation is coming down and we’ll be happy to see that happen.”

Fed Chairman Jerome H. That won’t stop investors from watching the post-meeting news conference with Powell as a hint at when interest rates will begin to fall — providing relief to borrowers and further lifting financial markets.

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Here’s what to watch for at this week’s Fed meeting.

The ‘dots’ are centered.

The central bank publishes a report after eight meetings each year, but new forecasts for inflation, unemployment, growth and interest rates are released only once every three months. The latest update of the Summary of Economic Forecasts is due at 2pm on Wednesday.

Markets pay close attention to rate forecasts, often called “points.” The name comes from the presentation: policymakers’ predictions are displayed individually as anonymous circles arranged on a graph.

Points will be more focused than usual this month as they are almost certain to move from the last forecast. If only one officer cuts his plan, the Average point It can only recommend two rate cuts by the end of the year, down from the previous three.

Less urgent.

As evidence mounts that rates may not fall as much or as quickly as previously expected, a second big question opens up. When will the cuts start?

Not now, in all likelihood. With employers hiring, the economy expanding at a steady pace, and uncertainty about how much and how quickly inflation will ease, officials have suggested it would be a big mistake to cut borrowing costs too quickly and reverse course because inflation is stuck. .

Many economists believe today’s conditions — moderate inflation, combined with a solid economy — will allow for the first rate cut in September. But both forecasters and Wall Street investors See a substantial opportunity The central bank won’t start cutting borrowing costs until December.

Inflation is a wild card.

The big uncertainty at this meeting is what happens to inflation.

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On the one hand, price increases have come down sharply from their peak in 2022. The Consumer Price Index is at the top About 9.1 percent That year, but now it stands at 3.4 percent. On the other hand, progress has stalled in recent months, and inflation remains above the central bank’s 2 percent target (which it officially defines using a separate but related inflation measure).

New CPI inflation data due out at 8:30 a.m. Wednesday will give policymakers the latest snapshot of what’s happening to prices.

Officials will have a chance to update their economic forecasts after the release — and they can will be corrected till the morning of the second day of the meeting, as per central bank rules. While the guidelines did not specify an exact cut-off time, a central bank spokeswoman indicated that the central bank governor had previously said that forecasts could be updated. up to Midnight of the final meeting day.

Beyond that, Mr. Powell’s tone may change somewhat depending on what the latest inflation data shows.

Politics provides a backdrop.

For families and the White House, what the Fed signals at this meeting is important.

High interest rates are not a popular policy among American voters: They make it more expensive to borrow money to buy a home or a car, and they can be a crushing cost for people with credit card debt. They work to slow the economy and weaken the job market. While reducing inflation is the bottom line, getting there will be a painful one.

In light of that, incumbent politicians generally don’t like high prices. Donald J. Trump railed against them during his presidency, and while President Biden has avoided openly criticizing the central bank out of respect for its independence, other Democrats have been less circumspect. After the European Central Bank cut interest rates last week, Senator Elizabeth Warren of Massachusetts and other Democrats sent a letter to the Fed chief urging him to follow suit.

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“The central bank’s decision to keep interest rates high continues to widen the rate gap between Europe and the US, as low interest rates could boost the dollar, tightening financial conditions,” Lawmakers wrote.

The central bank says it does not take politics into account when setting interest rates, a policy officials are likely to maintain this week.

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