The Federal Reserve is set to hold interest rates steady on Wednesday, reinforcing its “not-in-a-hurry” stance on rate cuts while possibly raising inflation forecasts to account for the economic impact of new trade tariffs.
The decision will mark the second consecutive meeting at which rates remain unchanged. Policymakers await further progress in taming inflation before considering reductions.
The Federal Open Market Committee (FOMC) will also release updated economic projections, including forecasts for growth, inflation, employment, and the interest rate path—commonly referred to as the “dot plot.”
In its December 2024 projections, the Fed indicated expectations for just two 25-basis-point rate cuts in 2025, a more hawkish stance than current market pricing.
Is Market Pricing Too Optimistic?
Fed funds futures currently imply three rate cuts by December 2024, with a 42% probability of four cuts, according to the CME Group’s FedWatch Tool.
This divergence between market expectations and the Fed’s last official projections adds weight to Wednesday’s updated forecasts.
In December, the Fed had already raised its inflation expectations for 2025, forecasting headline Personal Consumption Expenditures (PCE) inflation at 2.5%, up from 2.1% in September. Core PCE inflation, which excludes volatile food and energy prices, was projected to reach 2.5% in 2025, compared to 2.2% previously.
Analyst Views: Tariffs Could Push Inflation Higher
David Mericle, U.S. economist at Goldman …Full story available on Benzinga.com
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