Despite a fall last autumn, inflation has maintained a stubbornly high trajectory this year, prompting scrutiny over the Federal Reserve’s approach to its ongoing battle against inflation.
The looming question for the Federal Reserve is whether the recent surge in inflation is merely a temporary blip or the onset of a more challenging phase in its two-year struggle to control inflation.
Federal Reserve officials are expected to provide clarity on their stance during a two-day meeting concluding on Wednesday. While it’s highly unlikely that the central bank will lower its key interest rate, it will unveil updated forecasts for the economy, inflation, and interest rates, which could significantly influence economic growth and market movements.
Leading economic research firms such as Barclays and JPMorgan Chase anticipate that Fed policymakers will revise their forecast downward to two rate cuts this year from the previously projected three in December. Simultaneously, they foresee upward revisions to growth and inflation projections, as indicated by their median estimates.
Jonathan Miller, senior U.S. economist at Barclays, notes, “With consumer price increases rising in January and February, it will be hard for them to continue to show three cuts.”
Conversely, Goldman Sachs and Morgan Stanley anticipate that the Fed will maintain its forecast of three rate cuts, anticipating a gradual slowdown in inflation. This stance is likely to buoy stocks, bolster business confidence, and stimulate economic activity as consumers and businesses anticipate reduced borrowing costs.
However, Gregory Daco, chief economist of EY-Parthenon, believes that revising the estimate down to two rate cuts would be a misstep, suggesting that the Fed may be overreacting to volatile data. Daco contends that the inflation figures may be skewed by measurement anomalies and isolated price increases, rather than indicative of underlying trends.
Futures markets are estimating that the Fed will commence rate cuts in June and approve three quarter-point cuts this year. Additionally, Fed officials have tentatively projected another four rate decreases in 2025.
