The Federal Reserve is widely expected to keep interest rates on hold Wednesday afternoon, but investors will be watching for signs of when the central bank will start cutting rates.
Some are hoping that the wording of the central bank's public statement will be revised to show that there is no longer a tightening bias that portends rate cuts in the coming months.
Some Fed supporters believe that central bank Chairman Jay Powell will use the post-FOMC press conference to prepare investors for eventual easing, while also announcing how many rate cuts and how fast they will be cut. Some are hoping it will temper market expectations about what will happen.
Investors expect five rate cuts are planned for 2024, starting in March or May.
The Fed has indicated it will cut interest rates three times this year, but has not said when. Policymakers also made it clear last month that they were in no hurry and needed further confirmation that inflation was falling sustainably to the Fed's 2% target.
The good news for the Fed is that inflation continues to slow. The Fed's preferred measure of inflation, the core consumer spending index that excludes volatile food and energy prices, was 2.9% in December, down from 3.7% in September and 4.3% in June.
More encouragingly, core PCE inflation fell to 1.5% on a three-month annualized basis, its lowest level since late 2020. On a six-month basis, he was at 1.9% for the second month in a row.
The challenge for the Fed is that economic growth continues to exceed expectations, reaching 3.3% in the fourth quarter.
Therefore, doubts remain as to whether inflation is likely to accelerate again. Strong economic data could prompt the Fed to keep interest rates at current levels for an extended period of time, and rising stock markets could encourage consumers to spend more.
The Fed last raised interest rates to a 22-year high in July 2023, and has chosen to hold interest rates between 5.25% and 5.50% in its past three policy meetings.
In December, Chairman Powell pointed out in a press conference after the last Fed policy meeting that central bank officials had begun discussing when to reduce policy restraints, calling it a “topic for discussion.” , investors have become more aggressive about betting on interest rates. This is a topic that we look to for the future. ”
Investors started 2024 with strong confidence that interest rate cuts would begin in March, spurring stock market gains. They have since readjusted their position and are betting that May is more likely.
The Fed will announce its final policy decisions for the year at 2:00 p.m. ET, followed by Chairman Powell's press conference at 2:30 p.m. ET.
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