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US Fed likely to lower rate cut expectations for 2024

US Fed official warns of inflationary risk of over-consumption
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The US Federal Reserve kicked off a two-day meeting to set interest rates on Tuesday, with policymakers widely expected to sit tight, and to pencil in fewer cuts for this year.

The rate-setting Federal Open Market Committee (FOMC) began its first day of deliberations just after 10:30am (1430 GMT), the Fed said in a statement. Its decision will be published on Wednesday afternoon.

The Fed, which has hiked rates to a 23-year high of between 5.25 and 5.50 percent, has signaled it will not begin easing monetary policy until it has more evidence that inflation is falling sustainably towards it long-term two percent target.

The recent data paint a mixed picture of stalled progress against inflation, ongoing labor market resilience, and slowing yet positive economic growth, complicating the FOMC’s decision about when to start cutting.

The US central bank is almost certain to keep rates unchanged on Wednesday, and most analysts expect more Fed officials to lower the number of rate cuts they expect for this year, moving the median number of quarter percentage-point cuts from three to two or fewer.

That marks a dramatic change from December, when it seemed inflation was on a firm path towards two percent, leading the financial markets to pencil in as many as six rate cuts this year.

Futures traders currently assign a probability of just over 50 percent that the Fed will make its first rate cut by September, although they see a cut by November as much more likely, according to CME Group data.

“We expect the Fed to project two cuts in 2024,” Bank of America US economist Michael Gapen wrote in a note to clients.

“We think a majority prefers to keep optionality for September alive should inflation cooperate,” he said.

Fresh consumer inflation data for May will be published early Wednesday ahead of the Fed’s decision, and analysts expect the headline rate to remain broadly unchanged at around 3.4 percent.

 

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AFP

Agence France-Presse (AFP) is a French international news agency headquartered in Paris, France. Founded in 1835 as Havas, it is the world's oldest news agency.







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