Investors are on the edge as the Federal Open Market Committee (FOMC) prepares for its pivotal meeting this Tuesday and Wednesday, marking the most significant market event of the first quarter of 2024.
With the rate decision anticipated to hold steady, all eyes are intensely focused on the so-called "dot plot," a visual representation of the FOMC members' preferred interest rate path.
The December's Fed meeting hinted at potential three rate cuts in 2024 and additional four 2025, but that plan is now under scrutiny after recent hotter-than-expected inflation data.
Goldman Sachs's Insight: A Slight Adjustment
Alec Phillips, an economist at Goldman Sachs
"We now expect three cuts in 2024 in June, September, and December versus four previously, mainly because of the slightly higher inflation path."
This slight recalibration stems from recent inflation trends, which, although not drastically altering the landscape, have introduced enough uncertainty to adjust the expected pace of rate cuts.
He adds, "We do not expect any significant changes to the FOMC statement... Chair [Jerome] Powell is likely to continue to emphasize the broad progress on inflation." Goldman Sachs predicts the dot plot will reveal a consensus leaning towards a rate cut beginning in June, maintaining the median dot for 2024 at 4.625%.
A notable anticipation from Goldman Sachs is an uplift in the median 2024 GDP growth projection to 1.8%, a 0.4 percentage point increase. Regarding the broader economic forecast, Phillips suggesting a gradual return to a robust pre-pandemic economy, albeit under higher interest rates.
Bank of America's Perspective: A Balance of Growth and Inflation
Michael Gapen of Bank of America
This revision could set the stage for a rate-cutting cycle starting in June, though uncertainties about inflation could postpone these plans.
"The median 2024 dot should still show three cuts, but it is a close call," Gapen adds, highlighting the ongoing debate within the FOMC regarding the monetary policy trajectory.
"Powell is likely to say the committee is less confident about the outlook for inflation in March than it was in January," Gapen projects, referencing recent inflation reports that have stirred doubts about a mid-year rate cut.
Despite these concerns, the broader trend toward disinflation is believed to persist, suggesting rate cuts remain on the table, albeit with timing adjustments.
Heading into the FOMC meeting, there's a noticeable tension in the bond market. Treasury yields have entered another uptrend, with the 10-year Treasury bond yield climbing past 4.3%, leading to a downturn in fixed-income assets.
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