Global markets are waiting for the Federal Reserve’s policy meeting results later today, followed by Fed Chair Jerome Powell’s speech.
There’s a 99% chance the Fed will maintain interest rates flat at 5.5%, already the highest in 23 years.
Thus focus is on the policy statement, and any clues it might contain on the future path of US interest rates.
A crucial item in particular that markets will focus on, is whether the Federal Reserve will delete the passage stating that Fed policymakers will monitor data to know whether “any additional policy tightening is required to achieve the 2% target”.
Removing such a passage from the policy statement would be a strong sign and signal towards enacting interest rate cuts soon.
Indeed, Deutsche Bank’s analysts believe the Fed has already started rate cut discussions following the previous December meeting, and will accelerate such talks next month.
When Will the Fed Cut Rates?
The Fed will not raise interest rates once again in this cycle, so the question now is when will the Fed cut rates?
The last interest rate hike was in July 2023, and since then, inflation fell sharply and is only 1% away from the 2% target.
Just a few weeks ago, the futures markets put a 90% chance of a March interest rate cut, however, a string of recent bullish data and Fed remarks cut the odds to just 45%.
Powell
Fed Chair Jerome Powell will walk a thin line in his press conference, and will likely signal the importance of waiting for data in the next two months to determine the likely path ahead.
Expectations
Obviously, a bullish stance by the Fed will hurt the odds of a March interest rate cut and might pave the way for maintaining rates high for most of 2024, which will underpin the dollar and treasury yields, and vice versa.
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