Volkswacht Bodensee - US Fed kicks off rate meeting with timing of cuts up for discussion

The meeting got under way in Washington at 9am local time (1300 GMT) on Tuesday, the Fed said in a statement.

It will culminate on Wednesday afternoon with the publication of the interest rate decision, along with an updated summary of economic projections (SEP), which will include a prediction of how many interest rate cuts policymakers expect to make this year.

The Fed has raised interest rates to a 23-year high of between 5.25 and 5.50 percent as it looks to return inflation firmly to its long-term target of two percent.

After making significant progress against rising prices last year, 2024 has been more challenging, with the US seeing a small uptick in the pace of monthly inflation -- renewing fears the Fed will have to remain on pause for longer.

Analysts, traders, and policymakers are of the opinion that the Fed is highly unlikely to change its interest rate this week. As a result, all eyes will be on the SEP for any changes to the Fed's outlook on the path of rate cuts.

"We expect the median member to continue to forecast three cuts in 2024," Bank of America economists wrote in a recent note to clients.

"The clear risk is less confidence on inflation reduces the number of cuts in 2024, if not 2025," they added.

The rate path plan put forward by the 19-member rate-setting committee in the SEP every other rate decision is often referred to informally as the "dots".

After Wednesday's announcement, Fed chair Jerome Powell will take to the stage in Washington for a press conference which could provide further clues on the Fed's outlook.

"Even if the median dot continues to show three cuts this year -– our baseline expectation in a close call -– we think Powell's commentary could skew more hawkish," Deutsche Bank economists wrote in a recent note to clients.

Analysts refer to Fed policymakers' remarks as "hawkish" when they voice support for keeping monetary policy tight, and "dovish" when they voice support for loosening policy, such as through interest rate cuts.

"Regardless of the evolution in the 2024 dots, Powell is likely to emphasize that inflation data will be a critical determinant of the policy path ahead," the Bank of America economists said.

E.Gasser--VB