The monetary policy of the world's largest economy will be in focus on Wednesday, with the decision of the Federal Open Market Committee ( FOMC ) of the Federal Reserve. The expectations is for interest rates to remain in the range between 5.25% and 5.5%. Investors will pay attention to the economic projections in the dot-plots, released every two meetings, which will show the view of the collegiate members on the prospects for possible easing.

This Tuesday, 95.1% of investors expected rates to remain steady, according to the Fed Interest Rate Monitor from Investing.com. In speeches to the market, Fed members have been addressing the lack of confidence that disinflation will occur sustainably towards the 2% target and pointed to the need for data for more evidence.

The better-than-expected payroll jobs report data, indicating a resilient labor market, cooled market expectations, according to Bank of America (BofA). “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”, points out the bank in a report released to clients and the market.

BofA's perception is not consensus. With an increase in unemployment, Julius Baer sees 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.

Economic projections on the radar

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

Leandro Manzoni, economics analyst at Investing.com , highlights 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,” reinforces 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 two cuts, but with a drop to just one participant. “The risk of presenting a cut is high”, warns the bank.

The Swiss group Julius Baer recalls that in March, the majority of collegiate members indicated three rate cuts of 25 basis points by the end of this year. “We expect the majority of members to move now to just two rate cuts in 2024 and that the long-term projection will be closer to 3%, 2.5%,” estimates Julius Baer.

Source : Economy News by Investing.com - Jun 11, 2024