Prepare for a new set of clues about the Federal Reserve's intentions for interest rates on Wednesday, when the US central bank unveils its latest economic projections. Chair Jerome Powell will lead the Federal Open Market Committee (FOMC) in releasing these closely watched forecasts, providing insights into their thinking about the future path of monetary policy.
While experts overwhelmingly predict rates will remain unchanged for a seventh consecutive meeting, there's more uncertainty surrounding the officials' projections. A Bloomberg survey indicates a plurality of economists, 41%, anticipate the Fed signaling two cuts in their widely followed dot plot projections. However, an equal number expect only one or no cuts at all.
Since embarking on a tightening cycle in March 2022, which saw its benchmark federal funds rate raised by over five percentage points, the FOMC has maintained elevated borrowing costs at their highest level in two decades since July.
Despite recent hints from Fed officials that they're in no hurry to lower rates, inflation remains stubbornly persistent, and the economic outlook stays upbeat. The Fed's preferred inflation measure, the core personal consumption expenditures (PCE) price index, registered a 2.7% increase in the year to April, above the central bank's 2% target.
Friday's data release painted a robust picture, with strong job growth and accelerating wages, leading traders to scale back expectations for rate cuts this year.
The Fed will likely keep rates higher for longer, said Thomas Simons, senior US economist at Jefferies. They'll want to see a consistent stream of more favorable data, suggesting inflation is trending closer to 2%, before they feel comfortable cutting rates.
Meanwhile, on the global stage, Bank of Canada Governor Tiff Macklem, who recently became the first G7 central banker to initiate an easing cycle, will address a conference in Montreal.
Elsewhere, the Bank of Japan's policy decision could potentially result in reduced bond buying, while inflation data from China to Sweden and critical UK wage figures are among the week's other key highlights.
The UK's labor market data on Tuesday may reveal an uptick in pay growth for the three months to April, with economists projecting an annual increase of 6.1%. Such an outcome could bolster the case for the Bank of England to refrain from cutting rates this month.
