Fed tends to maintain interest rates, but market is alert to cuts

United States monetary policy will be the focus of investors this Wednesday (June 12, 2024), with the decision of the Federal Open Market Committee of the Fed (Federal Reserve), the US central bank. The market expects the interest rate to remain in the range between 5.25% and 5.5%.

However, investors will be paying attention to economic projections in the dot-plotsreleased every 2 meetings, which will show the view of the collegiate members on the prospects for possible flexibility.

This Tuesday (June 11), around 95.1% of investors expected maintenance in fed funds this Wednesday, according to the Fed Interest Rate Monitor, from Investing.com.

In speeches to the market, Fed members have already taken a stance regarding the lack of confidence that disinflation occurs sustainably towards the 2% target and point to dependence on data for more evidence.

The jobs report data payroll higher than expected, indicating a resilient job market, cooled market expectations, according to BofA (Bank of America).

“We expect the Fed to remain on hold for now and begin a cycle of gradual cuts in December, which will depend on a moderation in inflation data.”said the bank in a report released to customers and the market.

BofA’s perception is not consensus. With an increase in unemployment, Julius Baer understands the current evolution of the labor market as moderate and the ambivalence in the data would support the defense of an interest rate cut at the September meeting, in his view.

Economic projections on the radar

The focus of investors will be on dot-plotsthe economic projections of the collegiate members for this year, 2025 and 2026, including GDP (Gross Domestic Product), unemployment rate, full and core PCE index and interest rates.

Leandro Manzoni, economics analyst at Investing.comstates that the projections should indicate how the members of the collegiate evaluate the economy and when the easing cycle can begin.

“The economic projections report points out the median vision of Fed members for the American economy in the coming years and, for investors, presents indications for future monetary policy decisions,” announced Manzoni.

BofA believes that estimates tend to point to slower economic expansion and higher unemployment this year.

In another report, BofA says it expects the median point for 2024 to show 2 cuts, but with a drop to just one participant. “The risk of having a cut is high”warns the bank.

The Swiss group Julius Baer recalls that in March, the majority of collegiate members indicated 3 rate cuts of 25 basis points by the end of this year.

“We expect most members to move now to just two rate cuts in 2024 and for the long-term projection to move closer to 3% from 2.5%.”estimates Julius Baer.