Global markets now await the Federal Reserve’s minutes for its latest policy meeting to get a clearer picture of the future of US interest rates this year.
The Fed announced in its latest December 2023 quarterly forecasts the end of the current cycle of policy tightening, while expecting 75 basis points of interest rate cuts in 2024.
At the December meeting, the Fed also hinted at deeper cut for interest rates this year if inflation was sustainably lower.
That pushed the markets to aggressively expect 150 basis points of total interest rate cuts by the Fed this year.
However, a stream of bullish US labor data and bullish remarks from Fed officials reversed such market forecasts, with investors now expecting the first Fed rate cut delayed to the June meeting.
That’s why today’s Fed minutes are important, as they could include clues on the likely path ahead for monetary policies.
Meeting’s Decisions
The Federal Reserve maintained interest rates unchanged at 5.5% at the latest policy meeting in January.
Back then it said the US economy is performing better than expected, which could nudge the Fed to slow down the pace of policy easing until inflation is reliably closer to 2%.
The Fed believes the US economic outlook remains uncertain, with the FOMC paying close attention to inflation risks this year.
Fed Chair Jerome Powell said that strength of the US economy surprised analysts more than once due to strong demand by consumers, with labor conditions continuing to tighten.
He said the Fed requires “total confidence” that inflation is heading sustainably towards 2% before cutting rates, dismissing the chances of a March rate cut.
US Rates
Currently, markets are putting a 6.5% chance of a 0.25% interest rate cut by the Federal Reserve in March, and a 36% chance for a cut in May, and a 78% chance for a cut in June.
Traders expect a total of 75 basis points of rate cuts by the Fed this year, down from 150 basis points in previous forecasts.
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