US Fed meet begins today: The market does not anticipate any surprises from the US Federal Reserve in terms of rate adjustments, yet all attention remains focused on the Federal Open Market Committee’s (FOMC) interest rate decision scheduled for Wednesday, March 20.
Most analysts predict that the Federal Reserve will align its monetary policy with macroeconomic data, suggesting that the central bank may not provide a clear timeline for rate cuts. However, there is widespread anticipation that rate cuts could begin as early as June.
Also Read: Federal Reserve meet in focus: Will the Fed give clear signals on rate cuts? Top experts weigh in
“We expect the Fed to start cutting rates by the second half of the year. However, incoming data on inflation and employment numbers will be the key to deciding how early the rate cycle can reverse,” said Mukesh Kochar, National Head of Wealth at AUM Capital.
Experts point out the following three key things that will influence the Fed’s interest rate decision
1. Inflation trajectory: The US Consumer Price Index (CPI) for February rose 3.2 per cent year-on-year. This was slightly over the market expectations of 3.1 per cent.
Also Read: US inflation rises to 3.2%, dampens hope of Fed’s interest-rate cut until June
For the second consecutive month, inflation has surpassed expectations. With inflation persistently exceeding the Fed’s 2 per cent target, it will be intriguing to observe how the central bank assesses the trajectory of price increases.
Also Read: US inflation prints dent rate cut hopes; what will move the market now? Here’s what 5 experts say
2. Economic growth: Inflation isn’t the sole factor driving the Fed’s policy decision. The central bank must also consider the repercussions of the rate hikes initiated two years ago. It’s anticipated that the Fed will evaluate the effects of an extended period of elevated interest rates on the economy before making any adjustments to its policy approach.
Also Read: America’s economy has escaped a hard landing
3. Labour market conditions: The US labour market remains tight but some signs of weakening have started to emerge.
According to a Wall Street Journal (WSJ) report, “the employment trends index of the Conference Board eased to 112.29 in February from a downwardly revised 113.18 in January.”
“Nevertheless, indications remain that the jobs market is still relatively strong. The latest data adds to Labor Department figures published last week that showed the US added a higher-than-expected 2,75,000 more jobs last month,” the WSJ report said.
The Fed has been working diligently to stabilize the job market in its efforts to combat inflation. Investors will closely watch Fed Chair Jerome Powell’s press conference after the policy meeting on Wednesday to understand how the central bank interprets the latest job market indicators.
Experts’ views on Fed meeting
Mukesh Kochar, National Head of Wealth at AUM Capital
We expect the Fed to hold rates. The last-minute release and the various data points suggest a clear hold case for now.
The last two inflation data points have been slightly higher than expected and various statements from the Fed officials suggest that they want to wait longer until they get assurance of direction of inflation towards 2 per cent.
It is important to look at the guidance the Fed gives during this meeting for the rest of the year.
Sharad Chandra Shukla, Director at Mehta Equities
The recent US inflation numbers are still above the Fed target.
According to our analysis, the US Federal Reserve is expected to keep its benchmark interest rate unchanged. However, market attention will be on the Fed Chairman’s commentary on the state of the economy and inflation outlook.
We think that rate cuts would start somewhere in the second half of 2024. Fed officials had stated that three cuts can be expected in the year 2024.
Indian markets have already factored in the status quo approach in the next meeting, shifting the focus to the Fed’s commentary.
Japanese central bank raised interest rates for the first time in 17 years. We feel this move would have a negative impact on Japanese equities as well as significant implications for global financial markets, leading to higher volatility.
The US central bank will consider this action in its decision-making process.
Trivesh D, COO, Tradejini
The Federal Reserve’s upcoming policy meeting is a key event, especially with the crucial Lok Sabha elections on the horizon in India.
A stable government post-election could attract foreign investment and strengthen the rupee, potentially influencing the Fed’s interest rate decision.
Beyond domestic US data like inflation and growth, the Fed will be watching global factors like the rupee-dollar exchange rate and crude oil prices.
The Federal Reserve’s monetary policy decisions are influenced by a variety of factors, including economic growth, inflation, labour market conditions, and global economic developments.
The Fed’s dual mandate to promote maximum employment and price stability also plays a key role in shaping its policy decisions. In addition, the Fed takes into account financial stability considerations and the impact of its policies on the broader financial system.
Inflation is also a key consideration, and the Fed aims to keep inflation at or below its 2 per cent target rate.
The outcome of the meeting will have an impact on global financial markets, drawing in investors from all over the world. The interplay between the Fed’s policy and India’s political landscape adds another layer of intrigue.
Abhishek Jain, Head of Research, Arihant Capital
While no cut is anticipated, the market is keenly awaiting the outcome of the FOMC meeting and, more importantly, the language used by Fed Chair Jerome Powell in his press conference.
Analysts are particularly interested in any hints regarding future policy.
The key factors influencing the Fed’s decision are twofold: inflation and future policy trajectory.
Inflation remains above the Fed’s target of 2 per cent, with February’s CPI data exceeding expectations at 3.2 per cent.
The market is looking for clues about the possibility of rate cuts starting in June, which would depend on the Fed’s assessment of progress in controlling inflation.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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