Federal Reserve officials will wrap up a two-day policy meeting on Wednesday, giving a fresh decision on interest rates at a time when economic growth remains resilient and inflation has shown recent signs of stubbornness.
Central bankers are widely expected to leave interest rates unchanged. However, investors will be closely watching their new economic estimates and what Jerome H. Powell, the Fed chairman, says at a press conference for hints of what may come next.
Many economists still expect the Fed to cut interest rates several times before the end of 2024, which could make it cheaper to borrow to buy a home or start a business. But the longer rapid price increases persist, the more likely policymakers will feel the need to keep interest rates higher for longer in an effort to ensure inflation is fully under control.
Here’s what to look for in the Fed’s policy statement and economic forecasts, released at 2 p.m., along with the press conference at 2:30 p.m.
Interest rates are unlikely to change.
Fed officials are widely expected to keep interest rates at their current level of around 5.3%, where they have been set since July 2023.
While policymakers predicted in December that they would likely make three quarters of rate cuts this year, they were trying to keep their options open about when those moves could come. Officials want to make sure inflation is fully under control before they cut borrowing costs, and for now, both key measures of inflation (the Consumer Price Index and the Personal Consumption Expenditure Index) are hovering above the Fed’s 2% target. Fed.
The number of projected rate cuts will be the big question.
Given the recent hold on inflation, it’s possible that officials could forecast slightly faster price increases at the end of 2024 when they release their quarterly economic forecasts.
This is the first forecast update since December. Economists will be closely watching estimates of what the Fed says about the path ahead for interest rates. They previously indicated that policymakers expected interest rates to fall to 4.6 percent by the end of 2024 and then to 3.6 percent by the end of 2025.
That rate-cutting path could change if officials begin to believe that inflation could take more time and effort to fully eradicate.
Some economists now expect forecasts to point to two rate cuts in 2024, to around 4.9%, instead of the three cuts previously expected.
What Powell says will matter more.
Arguably the most important part of the Fed meeting will be the press conference at 2:30 p.m. with Mr. Powell. He recently spoke publicly, giving two days of testimony to Congress in early March, but his comments on Wednesday will be closely watched for any updates to his thinking after the Fed’s latest policy debate.
The Fed chairman may be asked to clarify a comment he made during those appearances: At one point, Mr. Powell said it would be appropriate to cut interest rates when the Fed was confident inflation had fallen enough, adding , “and we are not far from it.”
The mystery is what “not far” means.
Mr. Powell is also likely to repeat a message he has offered for months, which is that there are risks in cutting rates too soon, and there are also risks in keeping rates high for too long.
If the Fed cuts borrowing costs prematurely, before inflation returns decisively to 2%, then it could prove even more difficult to fully eliminate price increases down the road. But if the Fed keeps interest rates high for too long, it risks hurting the labor market. And once unemployment starts to rise a little, it tends to jump a lot.
Mr. Powell and his colleagues are still trying to achieve a “soft landing” in which the economy cools without causing major job losses.
“We’re trying to use our policies to sustain that growth and keep that labor market strong while making further progress on inflation,” Mr. Powell said during his testimony.
The Fed’s balance sheet plan is another question.
Fed officials have another policy plan on their plate in March. In recent announcements they have indicated that they will discuss plans for their bond balance sheet at this meeting. Fed officials are shrinking their balance sheet by allowing securities to expire without reinvestment, a process that takes some steam out of markets and the economy.
The Fed’s balance sheet grew during the pandemic as the central bank bought massive amounts of bonds, first to calm markets and later to stimulate the economy. Officials want to shrink those holdings to more normal levels to avoid playing such a large role in financial markets. At the same time, they want to avoid shrinking their bonds so much that they risk market ruptures.
