US Fed Meeting Verdict Expectations: Interest Rate to Inflation Projection
Overview of the Anticipated Fed Decision
The US Federal Reserve will announce its fifth interest rate decision for 2024 later tonight (July 31) following a two-day Federal Open Market Committee (FOMC) meeting.
Analysts expect the Fed to maintain the benchmark interest rates between 5.25% and 5.50%. However, the focus will be on hints indicating a potential rate cut in September.
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Fed’s Strategy on Inflation Control
Led by Fed Chair Jerome Powell, the FOMC has kept its key overnight interest rate at a 23-year high since July 2023 to combat inflation. Despite recent reductions in US inflation closer to the target range, the Fed remains cautious, indicating rate cuts will occur only once there's “greater confidence” that inflation is sustainably moving towards the 2% goal.
US Inflation
The FOMC expects core inflation to be 2.8% by year-end, up from a previous forecast of 2.6%. The latest data showed US inflation cooled for the third consecutive month, with the consumer price index (CPI)—excluding food and energy—decreasing by 0.1% in June.
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US GDP Growth
The Fed’s June forecasts projected 2.1% growth for 2024 and 2% for 2025. Recent data indicated a 2.8% increase in real GDP for the April to June quarter, driven by consumer spending on healthcare, housing, utilities, and recreation services. This robust growth solidifies expectations for a September rate cut.
Unemployment Rate
The Fed projects the unemployment rate to remain at 4% by year-end, rising slightly to 4.2% by the end of 2025. June data reflected a marginal drop in job openings, indicating a healthy but gradually slowing job market.
Market Sentiment and Future Projections
Market sentiment remains optimistic, with slower inflation readings bolstering expectations for a rate cut. Analysts predict a quarter-point cut in September, with another potential cut before year-end.
Nigel Green, CEO of deVere Group, emphasized the importance of the Fed’s response to the current economic landscape, stating that failing to cut rates in September would be a missed opportunity and a dereliction of duty.
Conclusion
As the US Fed prepares to announce its interest rate decision, all eyes are on the potential for a September rate cut. Key economic indicators, including inflation, GDP growth, unemployment rates, and the PCE index, will play crucial roles in shaping the Fed's monetary policy moving forward. The market remains optimistic, with the possibility of rate cuts offering a pathway to sustained economic growth and stability.
Also Read: June CPI Surges for Agricultural and Rural Labourers