US Fed Meeting verdict today: Interest rate to inflation projection — here are key indicators to watch

The US Federal Reserve will announce its fifth interest rate decision for 2024 later tonight (July 31) after a two-day Federal Open Market Committee (FOMC) meeting. Wall Street expects the US central bank to keep the benchmark interest rates between 5.25 per cent - 5.50 per cent today. However, market participants will focus on hints that lift bets of a rate cut in September.

The Fed's rate-setting panel, led by Fed chair Jerome Powell, has maintained its key overnight interest rate at the 23-year high mark since July 2023 to anchor inflation. Despite US inflation falling further to the target range in recent months, the Fed is inclined to reduce rates only when it has “gained greater confidence” that inflation is moving sustainably towards its two per cent level.

Also Read: US Fed holds key rates elevated at 23-year high, expects single 0.25% reduction in 2024; 5 key takeaways

At its previous monetary policy meeting on June 12, the Powell-led FOMC unanimously voted to hold the policy rate at the two-decade high mark for the seventh straight meeting. It also declared it foresees only a rate cut in 2024. 

According to FOMC members, the projections on rate cuts are data-dependent. Fed policymakers frequently revise their plans for rate hikes or cuts depending on how economic growth and inflation in the US evolve over time. 
 

Wall Street expects US Fed to hold rates steady in July

According to a majority of analysts and economists on Wall Street, the US Fed would keep its key repo rate unchanged at the conclusion of the July 30-31 meeting, with a dovish commentary by Fed chair Jerome Powell.

‘’Market focus is on the upcoming Fed policy meeting on Wednesday, July 31, 2024. No changes are expected, but the view of a potential rate cut in September increases the probability of dollar weakness,'' said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

Analysts say investors are optimistic, as slower inflation readings have boosted expectations for a rate cut. The FOMC has kept the federal funds rate at 5.25 per cent to 5.5 per cent for over a year, but most economists are now heavily favouring a quarter-point cut in September 2024 and another cut before year-end.

‘’The case for a September rate cut is strong. The latest data supports the view that inflation is under control. Market sentiment, tech stock reactions, and futures pricing “all scream for a cut.” Most importantly, the Fed’s duty to create economic stability demands it,'' said Nigel Green, CEO of deVere Group.

“The Federal Reserve's job is to promote maximum employment and stable prices. With inflation cooling, the Fed needs to pivot to support growth. Not cutting rates in September could be seen as a failure to uphold its mandate,'' he said.

“Given the current economic landscape and clear signals from data and markets, a rate cut seems almost certain. Failing to cut rates in September would be a missed opportunity and a dereliction of duty,'' added Green.
 

Also Read: US inflation cools for third straight month at 0.1% in June; Wall Street lifts Fed rate cut bets for September
 

Here are the key indicators to watch out for during the US Fed Meeting verdict today:
 

US inflation

As per the June verdict, the FOMC expects core inflation to be 2.8 per cent by the year-end, according to their preferred gauge, up from a previous forecast of 2.6 per cent. The latest official data showed that US inflation cooled for the third straight month and rose less than expected in June, giving a major boost to Wall Street bets on definite interest rate cuts by the US Federal Reserve. 

The US consumer price index (CPI)—which excludes food and energy costs—slid 0.1 per cent in June after being unchanged in May. This was the smallest rise in three years and the weakest monthly reading since May 2020, when the COVID pandemic paralyzed the US economy.

The favourable inflation print of the world's largest economy resulted from a long-awaited slowdown in housing prices - for which Wall Street economists said that the worst price rise in nearly four decades is gradually fading away. 

US GDP

As part of the updated quarterly economic forecasts issued by the Fed in the June meeting, policymakers projected that the economy will grow 2.1 per cent this year and two per cent in 2025, the same as they had envisioned in March.

However, the latest official data showed that the real gross domestic product (GDP) in the US increased at a rate of 2.8 per cent for the April to June quarter of the financial year 2024-25. The strong GDP print further raised expectations of a rate cut in September.

The increase in the real GDP is reflected in the increase in consumer spending on goods and services with a key focus on health care, housing and utilities, and recreation services. The US GDP increased by 4.5 per cent or $312.2 billion in the first quarter of 2024.

Also Read: US Q2 GDP: At 2.8%, US economy beats estimates on robust consumer spending; Wall Street lifts Fed rate cut bets
 
 Unemployment rate

In the June meeting, the Fed said that it expects unemployment in the US will stay at its current four per cent rate by the end of this year and rise to 4.2 per cent by the end of 2025. The expectation that the unemployment rate will remain around those low levels indicates that the officials believe that while the job market will gradually slow, it will remain fundamentally healthy.

US job openings fell marginally in June, and data for the prior month was revised to reflect the economy's continued labour resilience. The Labour Department's Bureau of Labour Statistics said in its Job Openings and Labour Turnover Survey, or JOLTS report, on Tuesday that job openings - a measure of labour demand - had dropped 46,000 to 8.184 mn by the last day of June.

US PCE index

The latest report from the Commerce Department also showed that consumer spending slowed slightly last month. Signs of easing price pressures and a cooling labour market could boost Fed officials' confidence that inflation is moving toward the US central bank's two per cent target.

The Commerce Department's Bureau of Economic Analysis last reported that the personal consumption expenditures (PCE) price index increased 0.1 per cent last month after remaining unchanged in May. In the 12 months through June, the PCE price index climbed 2.5 per cent. That was the smallest year-on-year (YoY) gain in four months and followed a 2.6 per cent advance in May.

Also Read: US bank regulator looks to tighten control of asset managers’ bank stakes

The PCE price index rose 0.2 per cent last month, excluding the volatile food and energy components. The core PCE inflation gain was 0.182 per cent before rounding. In the 12 months through June, the core PCE inflation advanced 2.6 per cent, matching May's rise. 

Core inflation increased at a 2.3 per cent annualized rate in the three months through June, sharply slowing from the 2.7 per cent pace in May. The Fed tracks the PCE price measures for monetary policy, its preferred gauge for measuring inflation.

 Wall Street eyes second rate cut in November

During the release of the last CPI inflation data, traders moved forward bets on a second rate cut to November, with about even odds of a third rate cut by year's end. Banking giants JPMorgan and Macquarie also pulled forward their expectations for an initial rate cut to September from November and December, respectively. Also, according to CME Group's FedWatch Tool, September is when futures traders expect officials to start interest rate reductions.
 

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, and not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.