TD sees Fed meeting as ‘the calm before the storm’
Timothy Moore
The Federal Open Market Committee meets on Tuesday and Wednesday (Wednesday and Thursday AEDT) this week. Here’s what TD Securities expects to emerge from the policymaker meeting.
The committee is expected to hold the Fed funds target at its current 5-5.25 per cent range for a fifth consecutive meeting.
The FOMC statement, updated summary of economic projections and Fed chairman Jerome Powell’s press conference are expected to reiterate a patient approach to policy.
“In a nutshell, we expect the Committee to revise its 2024 core PCE inflation and GDP growth projections to the upside, but assume no material implications for the forecasts covering 2025 onward.”
TD also said the dot plot – rate – projections for 2024 and 2025 will be more tricky to anticipate this time around, particularly after the recent shifts in the inflation data.
“The strong start to core PCE inflation will likely be reflected in a 0.2 percentage point upgrade to the Committee’s Q4/Q4 2024 forecast to 2.6 per cent. We think this upgrade will represent enough evidence for the Fed officials who were looking for four or more cuts this year to move closer to the three-cuts camp. Note that 11 policymakers were projecting core PCE inflation to end the year at 2.3 per cent-2.4 per cent, but only five of them penciled in four-plus cuts in 2024.
“The more relevant question is how many of the dots sitting at three-plus cuts will shift to at least two cuts given the new outlook for inflation this year. Only two dots need to move to that camp in order to drag the median lower from three cuts for 2024.
“We are of the view that chairman Powell is among those Fed officials looking for three cuts this year, and given the chairman’s repeated argument for patience amid a still uncertain outlook, we expect him to stay in that camp — also influencing other policymakers, particularly governors, to remain there. Three cuts for the remaining six FOMC meetings should still make sense for most participants in the Committee, in our view.”
