Why the Fed Is Only Counting on 1 Rate Cut Now in 2024


  • Stocks lost some of their gains today after Federal Reserve officials shared expectations for just one rate cut this year.
  • This is a notable change given that, back in March, Fed members affirmed forecasts of three rate reductions in 2024.
  • That said, this forecast didn’t take into account new CPI inflation data, which came out cooler than expected.
fed rate cut - Why the Fed Is Only Counting on 1 Rate Cut Now in 2024

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Wall Street is abuzz over Federal Reserve members’ interest-rate forecasts at today’s policy meeting. Indeed, Fed officials shared expectations for just one Fed rate cut in 2024. This is a sharp reversal from projections of three rate reductions back in March.

Today’s policy meeting largely went as predicted. The Federal Open Market Committee (FOMC) voted to hold rates steady this time around, a consequence of stubbornly elevated inflation data the past few months.

Fed officials’ interest rate forecast implies just one 25 basis-point rate cut in 2024, while also predicting higher inflation by year end than previously projected.

This came as something of a surprise following the notably strong Consumer Price Index (CPI) inflation reading this morning. The May CPI, released just hours before the policy meeting, came in notably cooler than expected, raising hopes of rate cuts to come this year.

However, it’s worth noting that Fed projections were possibly made before the release of the the May CPI report. Therefore, they may not take the new data into account.

“The Fed didn’t move on rates, as expected, but their dot plot projections were hawkish, with only 1 cut projected in 2024 versus 3 projected back in their March update,” noted Sonu Varghese, Global Macro Strategist at Carson Group. “However, these dot plot projections likely don’t account for the latest May inflation data, which was softer than expected and reversed some of the heat we saw in Q1.”

As such, some are still hopeful for a more dovish pivot coming later this year.

“We still think the odds are high for 2 rate cuts in 2024 if the disinflation process continues, as we expect,” Varghese concluded.

Stocks Dip as Wall Street Braces for Just One Fed Rate Cut in 2024

While today’s Fed projections aren’t definitive, they certainly put a damper on things after a promising start to the day.

Stocks surged following the CPI release, with the S&P 500 jumping 1.3% this morning while the Nasdaq Composite surged up nearly 2%. At the time of this writing, the S&P is eyeing a 0.85% gain while the Nasdaq is in the green at 1.53%, with both indices hovering near all-time highs.

Still, markets can at least be assured that the central bank won’t raise interest rates this year. Indeed, after the meeting, Fed Chair Jerome Powell stated that no one on the committee expects to raise interest rates in their respective base-case economic forecasts.

While concerns of a rate hike were limited at best, the elevated nature of inflation data this year has begun to weigh on some on Wall Street. Today’s affirmation should offer some relief in that regard.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

Article printed from InvestorPlace Media, https://investorplace.com/2024/06/why-the-fed-is-only-counting-on-1-rate-cut-now-in-2024/.

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