According to economists, the US Federal Reserve will not change the interest rate on Wednesday. Similarly, the central bank is also likely to introduce fewer rate cuts in 2024 as compared to earlier forecasts.
The US CPI has already been released, which was a breath of fresh air for the Fed officials. According to the BLS, the CPI remained flat on an m/m basis during May, while the annual inflation has gone down to 3.3%. As for the CPI excluding the volatile items, the reading has declined from 3.6% to around 3.4% in May.
So far, the Fed's plan to lower inflation has only shown modest results so far. That's a key reason why the Fed officials to hesitant to lower the policy rate for now.
At the same time, a strong jobs market means a stronger economy and more headroom for the Fed to keep the rates at high levels. If we say that the central bank has no rush to change the policy, then it wouldn't be entirely wrong.
However, the recent CPI reading will prompt many investors to once again start looking forward to a rate cut in September.
According to many economists, the Fed dot plot will only include two rate cuts in the year 2024. Earlier, the forecast was around 3 rate cuts in the year 2024.
However, there's always a chance that the number of rate cuts may go down to only one this year. That would be the case if the US economy faces any resurgence of inflationary pressure or any similar risk.
In fact, many Fed officials are also uncertain when it comes to how the economic policy should be adjusted going forward.
In theory, only two rate cuts this year instead of 3 will be a little positive for the greenback. In case of just a single rate cut this year, the USD will be in a much better position as compared to the other currencies.