US Fed key meet: All eyes on Jerome Powell's comments amid 2024 rate cut expectations

The US Federal Reserve, which has spent nearly two years raising interest rates to combat inflation, will announce its monetary policy decision on Wednesday, January 31.

The Federal Open Market Committee (FOMC) is underway and the minutes of the January 30-31 meeting will be released on February 21. However, the Fed's decision on rate increase will be announced by the Chair of Federal Reserve, Jerome Powell, in a press conference today at 2.30 pm ET. He will also provide updates on the outlook of the Central bank.

While the Federal Reserve forecasts three rate cuts in 2024 owing to reduced inflation, some Wall Street economists predict up to five cuts this year.

There was a drop in inflation in recent months but the economy remains resilient. The numbers released last week showed that the economy grew at a significantly faster rate in the fourth quarter than economists expected. As per the government report, the growth accelerated to a shockingly robust 3.3% annual rate, following a 4.9% expansion in the July-September period.

According to a latest JOLTS survey released on Tuesday, job opportunities in the United States surged unexpectedly in December while fewer Americans left their jobs.

Also Read: US job data: Hiring picks up with 216,000 new jobs being added

Why press briefing by Fed's Powell is crucial?

More crucially, Powell's news conference could provide some hints as to how policymakers are considering when to lower interest rates, which markets and economists will undoubtedly examine meticulously. Following the latest batch of data, markets are relying on a May rate cut as the most likely conclusion.

Rate reduction might bring some comfort to households and businesses who have been incurring more for mortgages, car loans, credit card debt, and other forms of borrowing as a result of the Fed's recent rate increases.

However, Americans will most likely have to wait another couple of months for any respite, as Wall Street expects the Fed to hold rates constant on Wednesday and drop rates for the first time in March, CBS News reported, citing FactSet, a financial data provider.

The data further says most economists anticipate the Fed will hold rates constant on Wednesday, keeping the federal funds rate between 5.25% and 5.5%.

Also Read: Next US Fed Reserve Meeting: When will it take place & what can we expect?

Fed rate decision may prelude to a March cut

Approximately 50% of economists polled by FactSet predict the Fed will make its first 2024 cut at its March 19-20 meeting. FactSet shows around nine out of ten economists predict the central bank will cut interest rates during its meeting on April 30-May 1.

“It really is about how hard they push back against the potential for cuts as soon as March, or if they don’t push back,” said Sarah House, senior economist at Wells Fargo, in an interview to CNN.

“We’ll be looking at their emphasis on how restrictive policy is, any concerns around the labor market and how the [Fed] is viewing the risks to inflation’s outlook,” the economist added.

The Fed may seek to "douse hopes of any early easing in policy," wrote David Kelly, chief global strategist at J.P. Morgan Asset Management, in a Monday research piece. "This is, in part, because they are genuinely uncertain about how sticky inflation might be in an economy experiencing above trend economic growth and a still very tight labor market."

“The Fed’s probably thinking they’re not really in any rush, there’s no need to really rush into cutting rates. That’s why the markets started to question the March rate cut," Subadra Rajappa, head of U.S. rates strategy at Société Générale, a French bank, told AP.

Also Read: US inflation exceeds forecasts as housing costs and energy prices rise

What is US 2024 inflation rate?

The Fed had repeatedly raised the interest rate in an effort to control inflation, but inflation has slowed in recent months, and rates have remained steady. According to a December report, inflation climbed to 3.4%, which was higher than the Fed's target of 2%.

The first 2024 inflation report will be announced on February 13, when the Bureau of Labor Statistics releases statistics for January prices.

As economists expect inflation to remain low this year, Oxford Economics has predicted that prices will rise at a 2.4% annual rate in 2024 before falling to 2.2% in 2025.

A recent Gallup poll revealed that over 27% of Americans believe the economy is good or excellent, an increase from 22% in December. Despite this, roughly 45 percent of respondents ranked the economy as poor.

The survey showed inflation is a major concern for many Americans as six out of ten adults reported that recent price rises have caused financial difficulty for their household.

Will Fed rate cuts have political impact?

While the Fed has made it apparent that it is independent of Washington politics, some experts believe that the timing and extent of interest rate decreases may have a political impact.

Earlier, Senator Elizabeth Warren along with her three Democratic colleagues wrote to Powell, requesting the Fed to lower interest rates to assist reduce housing costs. Senate Banking Committee Chair Sherrod Brown, who is up for re-election, responded with a similar letter.

US President Joe Biden's effort for a second term would not be impacted by lower borrowing prices as many voters and his challenger and Republican frontrunner Donald Trump criticise him for the high cost of living.

Also Read: US economy sees remarkable growth at 3.3% in fourth quarter than expected

Is there any impact on gold prices and consumer spending?

As attention shifts to the Fed's meeting, gold prices rose to a two-week high on Tuesday, backed by a weaker dollar and lower Treasury yields, Reuters reported.

"Gold prices are rising in the domestic and international market as there is a strong buzz about the US central bank announcing a rate cut schedule in 2024. After the better-than-expected US economic data in recent weeks, the market has a strong belief that it is opportune for the US Federal Reserve to start interest rate cut from March 2024 or from May 2024," said Anuj Gupta, Head — Commodity & Currency at HDFC Securities.

The outcome of the Federal Reserve's policy meeting will have a big impact on the direction of gold prices during the next week. If the Fed maintains its hawkish stance in light of positive economic statistics, the adverse trend in gold prices may continue. However, any signs of a dovish pivot could result in a bullish turnaround in gold.

According to the Conference Board, a business research firm, consumer confidence increased for the third consecutive month in January, reaching its highest level in two years.

Meanwhile, consumer spending remained high in December, indicating that Americans are not yet pulling back, as per the monthly Personal Consumption Expenditures (PCE) report, which was issued Friday. Meanwhile, American consumers have kept accruing debt in recent months, although this may not be a major issue just yet.