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The Federal Reserve’s upcoming interest rate decisions: what to expect

September Fed meeting will be crucial for the markets: here’s the outlook for investors.

The Federal Reserve is preparing to discuss interest rates again at the Federal Open Market Committee (FOMC) meeting on 17 and 18 September. Currently, federal funds rates are between 5.25% and 5.50% after a series of hikes to curb inflation. However, experts and markets expect a 25 basis point cut, bringing rates between 5.00% and 5.25%. But what factors are driving this expected decision?

Economic indicators influencing Fed decisions

Decisions on interest rates are always complex: the Federal Reserve has to consider several economic indicators to assess whether it is the right time to raise, lower or maintain rates. Some of the key indicators the Fed looks at include:

  • Inflation (CPI and Core CPI): Inflation is one of the main targets of the Fed’s monetary policy. When prices rise too fast, the Fed tends to raise rates to curb demand and stabilise prices. In August, the consumer price index (CPI) increased by 0.2%, with an annual rate expected at 2.6%, down from 2.9% in July. This drop in inflation brings the economy closer to the Fed’s targets, facilitating the possibility of a rate cut.
  • Labour market: Employment also plays an important role in the Fed’s decisions. There is less pressure to cut rates when the labour market is strong, with low unemployment levels. However, recent reports show a cooling of the labour market. The US added only 142,000 new jobs in August, a number below economists’ expectations, signalling a slowdown.
  • Economic growth: Gross Domestic Product (GDP) is another indicator. If the economy is growing too fast, there could be a risk of inflation, while weak growth could suggest the need for economic stimulus, such as rate cuts. Currently, US economic growth is slowing, making Fed intervention to avoid a recession more likely.

Who is affected by changes in interest rates?

The Fed’s interest rate decisions directly impact many sectors of the economy, and consumers, investors and businesses can feel the effects. Here are some examples:

  • Mortgages and loans: one of the first tangible effects of changes in interest rates concerns mortgages. If the Fed cuts rates, those with variable-rate mortgages might see a decrease in their monthly payments, while new home buyers might get loans with more favourable terms. However, many mortgage rates already reflect market expectations of a Fed rate cut, so a 25 basis point cut may make little difference in short-term mortgages.
  • Investment and financial markets: when the Fed cuts rates, financing costs for companies decrease, making it cheaper to invest and borrow. However, the stock market may react in a mixed way: while rate cuts stimulate some companies, other sectors, such as technology, maybe more cautious. Recently, the Nasdaq fell 2.6%, due to concerns about the economy and the slowdown of the artificial intelligence boom.
  • Savings: an essential aspect for savers concerns Certificates of Deposit (CDs), which offer favourable interest rates. CD yields could also fall if the Fed cuts rates, so the time could be right to lock in advantageous rates before they fall further.

The current economic environment and the upcoming rate cut

The overall picture shows declining inflation and a cooling but still strong labour market. With inflation approaching the 2% target, the Federal Reserve can cut rates without risking an uncontrolled inflation increase. At the same time, slower economic growth and concerns about a possible recession further push for an easing of monetary policy.

The long-term effects of interest rate cuts

Although interest rate cuts immediately affect mortgages, loans and financial markets, the long-term impacts may be more complex. When interest rates are lower, credit becomes more accessible, stimulating consumption and investment. This can boost economic growth in the short term, but if rates stay low for too long, there are some risks to consider:

  • Future inflation risk: if the Fed cuts rates too much or keeps them too low for a prolonged period, the economy could overheat, leading to a new inflation cycle. Even if inflation is under control today, a prolonged stimulus period could fuel renewed price growth, especially if the economy recovers quickly.
  • Debt growth: Low interest rates make debt cheaper for consumers and businesses, possibly encouraging higher debt levels. However, excessive debt may become unsustainable in future crises or a sudden rise in interest rates.
  • Impact on savers: In the long run, low rates penalise savers, who see diminishing returns on their low-risk investments, such as savings accounts and certificates of deposit. This can be a problem for pensioners or those living on savings income. Conversely, this becomes a more favourable scenario for risk-averse investors, prompting them to seek riskier investments for higher returns.
  • Higher bills for public debt: another long-term consequence of low rates is the potential increase in public debt. If the government goes into debt more easily to finance projects, it may accumulate debt that will be difficult to manage, especially if rates rise again.

It was a decisive moment for the economy and politics

The economic issue is one of the most vibrant among American voters, and the debate over the future of interest rates plays a crucial role in the political debate in the presidential election. As the November elections approach, the Federal Reserve’s choices will inevitably become one of the central points of confrontation between the candidates.

Tonight, Tuesday, 10 September, there will be a decisive debate between Donald Trump and Vice-President Kamala Harris, hosted by ABC News. This meeting, which represents the first ‘vis à vis’ between the two candidates, will be decisive in defining their positions on economic issues, one of the hottest topics of the election campaign. Voters will be particularly attentive to how the candidates intend to address the issue of economic growth, jobs and inflation, especially in a context where many Americans face higher debt costs and an uncertain job market.

Donald Trump, on the strength of a platform that has focused on tax cuts and deregulation in the past, might push for an aggressive rate cut to stimulate the economy further. On the other hand, Kamala Harris might emphasise the importance of prudent monetary policy management to avoid the economy’s overheating and uncontrolled debt growth.

Tonight’s debate will be crucial in understanding which economic view may prevail. The Fed’s decisions on interest rates are a key element in the future of US economic policy.

How should investors move in the context of a rate cut?

When the Federal Reserve cuts interest rates, investors must adopt different strategies to adapt to the new economic conditions. In general, lower interest rates mean that the cost of money falls, making it cheaper for companies to borrow and invest but reducing returns on safe investments such as savings accounts and certificates of deposit. Here are some strategies investors can consider:

  • Diversifying the portfolio: With falling interest rates, safe investments such as bonds and savings accounts tend to offer lower returns. This may push investors to seek higher returns in riskier assets such as stocks, cryptocurrencies, or mutual funds. In particular, sectors such as technology or renewable energy could benefit from a low-rate environment, as companies can more easily invest in growth projects.
  • Consider long-term investments: even if rates are low, there may be opportunities to lock in profitable returns over the long term. This can protect capital from yield erosion over time.
  • Evaluate stocks of companies that benefit from low rates: sectors such as real estate and utilities, which typically require large amounts of financing, may benefit from lower rates as the cost of debt decreases. Investors might consider buying shares in these sectors, which could have sustained growth in the new economic environment.
  • Monitor inflation: Although low rates stimulate the economy, investors should be alert to possible signs of future inflation. More conservative investments, such as bonds and fixed-rate government securities, could lose value if inflation picks up. Therefore, investors should keep an eye on future Fed policies to see if there will be a return to higher rates in the medium term.

In summary, a rate-cutting environment offers opportunities but also risks. Investors must be agile and ready to review their strategies, balancing risks and returns in a constantly changing economic landscape. To explore new opportunities, sign up for free on Young Platform.

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FED: Interest Rate Predictions for the June 2024 Meeting

FED

What is the FED’s stance on cutting interest rates? Here are analysts’ predictions.

The Federal Reserve (FED) is the central bank of the United States and plays a crucial role in the global financial system. Economists, analysts, and investors worldwide closely monitor every decision it makes, especially regarding interest rates.

But what can we expect from the upcoming FED meeting scheduled for 11-12 June 2024? Analysts predict that the FED will keep interest rates unchanged, but some signals could anticipate future cuts by the end of the year.

What is the FED, and why is it important?

The Federal Reserve, or FED, is the institution that serves as the central bank of the United States. Its role is to stabilise the economy through the management of money and interest rates. Its main functions are controlling inflation, regulating the banking system, and promoting economic stability. The interest rates set by the FED influence the cost of money, i.e., how much it costs to borrow or how much you earn by saving.

The current interest rate situation

FED interest rates have been steady between 5.25% and 5.5% since July 2023. After a year of stability, the FED decided not to increase rates further despite mixed signals on inflation. According to FED Governor Christopher Waller, some inflation reports in the early months of 2024 temporarily cooled expectations of a rate cut. Still, recent consumer price index (CPI) data suggest that inflation is not accelerating.

Analysts’ predictions for the FED June meeting

According to the CME’s FedWatch Tool, the probability of a rate cut at the June meeting is just 0.1%. The forecasting site Kalshi also indicates a 99% probability that rates will remain unchanged. However, analysts predict the FED might signal potential rate cuts later in 2024. During the meeting, the “Summary of Economic Projections” will be updated, where monetary policymakers will outline their forecasts for the end of the year.

Impacts on everyday life

The FED’s decisions on interest rates have a direct impact on people’s daily lives. Higher interest rates mean more expensive loans for homes, cars, and businesses and higher returns for savers. Conversely, lower rates make loans cheaper but reduce earnings on savings. For example, 30-year mortgage rates reached an annual high of 7.79% in 2023, then fell to 7.03% by the end of May 2024.

When might a rate cut occur?

According to bond markets, the first rate cut could happen in September 2024, with a 50% probability. A second cut might follow in December. However, these predictions are subject to rapid changes in response to economic data. For example, there is still a 15% probability that there will be no cuts in 2024.

The June FED meeting is highly anticipated, but it is unlikely to bring immediate changes in interest rates. All eyes are on the updated economic projections and the statements from FED Chairman Jerome Powell. The possibility of rate cuts during 2024 will depend on the strength of the labour market and progress in controlling inflation.

The FED’s decisions will continue to have a significant impact on the global economy and the daily lives of millions of people. Monitoring these decisions helps us better understand economic dynamics and make more informed financial decisions.

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The 2024 Fed schedule: when is the next FOMC meeting?

fed meeting schedule

The complete 2024 Fed meeting schedule with all upcoming dates

The Federal Reserve System (Fed) meeting schedule, i.e., the central bank of the United States, has eight annual conferences. These meetings are the equivalent of the meetings of our ECB (here, it is calendar 2024), where monetary policy decisions are made. They are widely followed events because they can influence the course of the financial markets and, in recent times, have become real turning points for the future of the global economy.

Fed meetings: what is decided and by whom 

Before discovering the 2024 Fed meetings calendar, let us see how these appointments work. 

The FOMC (Federal Open Market Committee) is the Fed’s operating body and mouthpiece and chairs the meetings. This is comprised of 12 members, including US central bankers and the Fed Chairman. 

The FOMC assesses the financial conditions and monetary policy actions needed to achieve US economic objectives. The interest rate decision was the most decisive factor in this high-inflation period. 

At each Fed meeting on the calendar, a summary of economic projections and the Dot Plot, a chart showing each Fed member’s anonymous forecast of the Fed funds rate position for the past year, the future and the long term, are presented. These appointments are highlighted in the calendar with an asterisk. 

Here is an example of a Dot Plot chart published at the December 2022 Fed meeting. 

Fed meetings scheduled for 2024 

These FOMC meetings are held eight times a year, last two days, followed by a press conference by Chairman Jerome Powell. Here is the Fed calendar of all meetings for 2024.

Fed meetings scheduled for 2023

The Fed in 2023 met on these dates: 

  • 31 January – 1 February 2023
  • 21-22 March 2023 *
  • 2-3 May 2023
  • 13-14 June 2023 *
  • 25-26 July 2023
  • 19-20 September 2023 *
  • 31 November-1 December 2023
  • 12-13 December 2023 *

Fed meetings scheduled for 2022

The Fed in 2022 met on these dates: 

  • *25-26 January 2022
  • 15-16 March 2022*.
  • 3-4 May 2022
  • 14-15 June 2022*.
  • 26-27 July 2022
  • 20-21 September 2022*
  • 1-2 November
  • 13-14 December 2022*

Financial players and analysts await the Fed meetings with great interest. The Institute’s decisions play a major role in US monetary policy, but not only that. On several occasions, we have also seen an impact on other markets, such as the cryptocurrency market. That is why keeping an eye on the Fed’s calendar of upcoming meetings can be helpful.

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Unchanged and Steady: A Deep Dive into the Federal Reserve’s March 2024 Decision

Fed meeting March 2024

As the curtains fell on the Fed meeting in March 2024, a wave of anticipation gave way to a reality check: the federal interest rates remain unchanged. The current target range is between 5.25% and 5.50%.

The decision, aligned with the expectations set by the Fed’s forecasts, points to a cautious approach despite the clamour for easing monetary policies. But what does this mean for the economy, consumers, and investors? This article delves into the nuances of the Fed’s latest policy stance, dissecting the layers beyond the headline decision.

Market forecast

As we stepped into 2024, the investment landscape was abuzz with optimism. Market participants harboured hopes for a series of rate cuts, envisioning as many as six or seven adjustments downward.

However, the tides of economic reality have tempered these expectations. Recent developments and data analyses have led to a revised outlook, with consensus building around three rate cuts anticipated to commence in June. This adjustment reflects a cautious optimism, recognising the persistent challenges of quashing inflation—a nemesis that has proven more resilient than anticipated.

Inflationary trends and economic indicators

Inflation trends remain a critical determinant of the Fed’s policy trajectory. Despite a decline from peak levels, inflation rates, as per the latest Consumer Price Index and Personal Consumption Expenditures Price Index, still overshoot the Fed’s 2% target. Notably, recent monthly data hint at an inflationary uptick, a factor likely weighing heavily on the Fed’s decision-making process. The upcoming PCE index update will be particularly pivotal, offering fresh insights after the March meeting.

Inflationary trends remain a critical determinant of the Fed’s policy trajectory. Despite declining from peak levels, inflation rates increased in January and February, as indicated by the latest Consumer Price Index and Personal Consumption Expenditures Price Index, and are still above the Fed’s 2% target.

Employment data and their implications

The job market’s resilience is a testament to the economy’s underlying strength. However, this robustness also presents a conundrum for the Fed, potentially fueling wage-induced inflation. The recent uptick in unemployment and solid job creation paint a complex picture for policymakers, who must balance curbing inflation and fostering employment.

“A strong increase in hiring per se would not be a reason to hold off on rate cuts,” Fed Chairman Jerome Powell said, adding that the labour market per se is not a cause for concern about inflation.

Details of the March Fed meeting

At the Fed’s March 2024 meeting, members of Congress estimated an overall rate cut of three-quarters of a percentage point by the end of 2024, marking the first decrease since the initial COVID-19 outbreak in March 2020.

The current federal funds rate represents the highest peak in 23 years. This rate determines reciprocal overnight lending costs between banks, affecting different types of consumer debt.

The anticipations concerning the three possible cuts emerge from the Fed’s so-called ‘dot plot’, a set of anonymous forecasts rigorously analysed by the nineteen members of the FOMC. This plot offers no details about the timing of the expected actions.

Federal Reserve Chairman Jerome Powell confirmed that the institution has not yet specified a timeline for the cuts but remains hopeful that they will come to fruition, provided the favourable economic data. After the meeting, the CME Group’s FedWatch index showed that the futures markets attributed a 75% chance to the first rate cut occurring as early as the 11-12 June session.

The committee anticipates three more cuts in 2026, followed by two more thereafter until the federal funds rate stabilises around 2.6 per cent, which officials believe is the neutral, non-incentive or restrictive rate.

These forecasts are part of the Fed’s Summary of Economic Projections, including projections for GDP, inflation and unemployment. The distribution of the data points revealed a more aggressive bias than in December, but without significantly altering the estimates for the current year.

Impact on markets

In response to the Federal Reserve’s decision to hold rates steady, Seema Shah, chief global strategist at Principal Asset Management, said, ‘Powell may have shown his cards: He needs a good reason not to cut rates rather than a reason to cut rates. Markets perhaps couldn’t have asked for more from the Fed, and stocks will celebrate.’

Indeed, the major averages rose on Wednesday afternoon after the Federal Reserve released its policy decision and rate forecast. The S&P 500 gained 0.3 per cent, and the Nasdaq Composite gained 0.5 per cent. The Dow Jones Industrial Average index ended the day up 401 points, or just over 1%. Treasury bond yields mainly fell, with the 10-year benchmark rate recently settling at 4.28%, down 0.01 percentage points.

Conclusion

The Federal Reserve’s latest rendezvous paints a picture of a central bank at a crossroads. Juggling the dual mandates of controlling inflation while fostering employment, the Fed walks a tightrope of monetary policymaking. For consumers and investors, the message is clear: brace for a landscape defined by gradual adjustments and vigilant observation.

The Fed’s strategies and decisions remain pivotal as the economy continues its dance with inflation and growth. With each meeting and announcement, the contours of the economic future gain clarity. Yet, in this era of unpredictability, one truth holds steady: the path ahead is paved with cautious steps and watchful eyes.

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FED Meeting January 2024: Unchanged Rates

fed meeting january 2024

For the fourth consecutive meeting, the Federal Reserve keeps interest rates unchanged. Powell is sceptical about March cuts.

In a move anticipated by the market, during the FED’s meeting on January 30-31, 2024, it was decided to maintain the federal funds rate between 5.25% and 5.5%. This decision marks a continuation of the stance adopted since July 2023, reflecting the committee’s strategy in the face of good but not solidified economic indicators. “We don’t have a growth mandate. We have a mandate of maximum employment and a price stability mandate,” commented Federal Reserve Chairman Jerome Powell following the meeting.

Since the strong inflationary wave in 2022, which reached its highest peak in forty years, the Federal Open Market Committee (FOMC) has undertaken a strict policy to rebalance the economy. This led to a series of interest rate hikes aimed at containing inflation, starting in March 2022. Indeed, since then, it has shown signs of slowing down. However, such high interest levels had not been recorded for over two decades, increasing market pressure for the Fed to intervene with a cut in the coming months.

During the January 2024 FED meeting, the Committee emphasised its intention to maintain a high vigilance. Balancing economic factors remains a delicate and non-guaranteed task: reducing interest rates could jeopardise the downward trend of inflation. On the other hand, the U.S. economy risks falling into a recession. “Inflation is still too high, ongoing progress in reducing it is not guaranteed, and the path forward is uncertain,” said Jerome Powell in his post-meeting press conference.

Despite such statements, traders continue to bet on a rate cut that would bring them between 3.75% and 4% by the end of the year. This would mean that the FED should start consistently cutting rates with increments of a quarter of a percentage point at each meeting starting in May. For those still anticipating a cut in March, Powell emphasised, “I don’t think it’s likely that the Committee will reach a level of confidence by the March meeting.”