Investors are waiting to see if the Fed is still expected to cut 3 rates in 2024

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The Federal Reserve is widely expected to keep rates steady when the central bank concludes its policy meeting on Wednesday afternoon.

But the big question in investors’ minds is whether policymakers still believe that three interest rate cuts in 2024 are likely.

The answer will come in the form of the Fed’s latest “dot plot,” a chart updated quarterly that shows each Fed official’s prediction about the direction of the federal funds rate.

In December, dot plots revealed consensus among Fed officials for three cuts for 2024, the first sign that the central bank was ready to begin easing monetary policy.

That projection is now in question after higher-than-expected inflation readings and cautious comments from Fed officials.

Fed Chairman Jerome Powell and his aides have been insisting for months that they want to make sure inflation is “sustainably” down to their 2% target before they start cutting.

Read more: What the Fed rate decision means for bank accounts, CDs, loans and credit cards

File photo: Federal Reserve Chairman Jerome Powell holds a press conference after the release of the Fed's interest rate policy decision at the Federal Reserve in Washington, US on January 31, 2024.  Reuters/Evelyn Hockstein/file photo

Federal Reserve Chairman Jerome Powell. Reuters/Evelyn Hockstein/file photo (Reuters/Reuters)

Investors are adjusting their bets on when the cuts might begin. After predicting six cuts in March at the beginning of the year, they are now expecting three cuts starting in June.

Even the chances of a cut in June have been receding in recent weeks.

The Fed last raised rates in July and has since decided to keep interest rates unchanged in the range of 5.25%-5.50%, the highest level in 23 years.

The Fed will announce its policy decision at 2pm ET, followed by Powell’s press conference at 2:30pm ET.

Along with policy decisions and rate projections, Fed officials will release updated forecasts on inflation, GDP growth and unemployment.

Separately, investors will be keen to hear any discussion during Powell’s press conference about how the Fed seeks to slow the contraction of its huge balance sheet, with the central bank using a lesser-known policy tool to strengthen financial conditions. doing.

Over the past two years, the Fed has flushed out about $1.5 trillion in Treasuries and mortgage bonds that it had accumulated while trying to stimulate the economy during the early parts of the pandemic — causing about $100 billion each month to mature and His balance sheet was wiped out.

Now that inflation is coming down, the question is when the Fed might start slowing the pace of that runoff.

What policymakers hope to avoid is the kind of messy turmoil in financial markets that happened the last time the Fed tried to unwind its balance sheet at the end of the last decade.

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