Fed approach to inflation
Market Overview

The Fed, Quick Update on Policy

The Federal Reserve’s (Fed) updates on monetary policy highlight that the Federal Open Market Committee (FOMC) has decided to maintain the federal funds rate at the current range of 5.25% to 5.5% on May 2nd. The decision marks the sixth consecutive meeting where rates have been held steady, keeping them at the highest level in over 23 years.

Inflation has eased over the past year but remains above the Fed’s 2% target. The FOMC does not anticipate reducing the federal funds rate until they are confident that inflation is moving sustainably towards this target. Additionally, the Fed will continue to reduce its holdings of Treasury securities and agency debt, although the pace of this reduction will slow starting in June 2024​ (Home)​​ (J.P. Morgan | Official Website)​​ (Forexlive)​.

Moving Forward to Second Half 2024

Economists are currently divided on the future path of the Federal Reserve’s monetary policy and interest rates for 2024. While some, like those at Goldman Sachs, predict that the Fed will not begin cutting interest rates until mid-2024, others anticipate that rate cuts could start as early as the summer of 2024.

Goldman Sachs economists believe that due to the strong economic growth and a tight labor market, the Fed might delay rate cuts until it is certain that inflation is consistently moving towards the 2% target. They expect steady quarter-point reductions from mid-2024 onwards if economic conditions warrant it​ (markets.businessinsider.com)​.

While the market consensus is leaning towards rate cuts in 2024, there is significant caution due to potential risks such as stronger-than-expected economic performance and persistent inflationary pressures.