Fed begins interest rate meeting with no room for future cuts

The Federal Open Market Committee (FOMC) of the Federal Reserve (Fed) began its two-day meeting this Tuesday to determine the progress of monetary policy with inflation above expectations, GDP growth below forecasts and labor costs on the rise, which does not allow us to foresee a prompt drop of interest rates and even for some analysts it could require an increase.

Experts consider that the president of the FedJerome Powell will exercise greater patience in plans to begin a progressive lowering of interest rates from the 5.25%-5.5% band this year, the highest level in more than 20 years.

Inflation remains stubbornly above 3% and preliminary data on gross domestic product (GDP) growth in the first quarter, 1.6%, were worse than expected and are below the forecast of the Fed.

To add more headaches to the governors of the issuing bank, data on labor costs in the first quarter of 2024 was released this Tuesday, which grew by 1.2% at the highest rate in a year.

All of these data rule out a rate cut at this meeting and make it difficult to move towards a rate of decline that would allow the three cuts of a quarter of a point each this year.

“We expect Jay Powell to make it clear this week that the Fed is not in a position to cut rates anytime soon. However, we still expect the Fed to lower rates this year (twice, starting in September).“, indicated in an analysis Gilles Moecof AXA Investment Managers.

According to a report by Sevens Report, the question to be resolved on Wednesday, when Powell appears, is whether he will clear up doubts about a possible increase in interest rates, something that several analysts now consider a possibility.

“If you simply say that Fed will react to the data as needed and just confirm that the Fed has the ability to raise rates, that won’t be as negative“, indicates this report that attempts to anticipate the performance of the markets before the press conference after the FOMC meeting.

The markets will measure the words of the Powell to determine if it continues to maintain a horizon with drops in the price of money or if, on the contrary, it begins to sow the idea of ​​keeping rates at the current level for the rest of the year or even pointing to the possibility of an increase.