Fed Rate Cut Anticipated in June 2024 Amid Easing Inflation and Robust Consumer Spending

The Federal Reserve is likely to keep its current interest rates unchanged, with traders predicting that the first rate cut could occur in June 2024, as indicated by interest-rate futures pricing. This expectation persists despite strong consumer spending and ongoing inflationary pressures, although inflation appears to be moderating.

According to the Commerce Department’s Bureau of Economic Analysis, the personal consumption expenditures (PCE) price index, which is the Fed’s preferred measure of inflation, rose by 3.4% year-on-year in September, while the core PCE increased by 3.7%. These figures represent a decrease from the 3.8% reading in August but still exceed the Fed’s target inflation rate of 2%.

Consumer spending increased by 0.7% in September compared to August, outperforming economists’ expectations. Nevertheless, futures contracts indicate that there will be no rate increase from the current range of 5.25%-5.5% in the upcoming meeting, with less than a 20% probability of a rate hike by the end of the year, according to the U.S. central bank’s target policy rate.

Analysts at High-Frequency Economics suggest that the combination of robust consumer spending and declining inflation will lead the Federal Open Market Committee (FOMC) to maintain its current stance throughout 2023.

This article was generated with the support of AI and reviewed by an editor.