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FOMC’s May Interest Rate Meeting

The Federal Open Market Committee (FOMC) is set to commence its two-day meeting this Tuesday, with a pivotal decision on interest rates expected on Wednesday. Notably, this meeting will not feature an update to the Summary of Economic Projections, commonly known as the “dot plot.”

Market participants largely anticipate that the outcome of this meeting is predetermined, with fed funds futures indicating a 99.5% likelihood that there will be no change in rates. Looking forward, there is a 9.9% probability of a rate cut in June, 23.1% probability of a rate cut in July, and 39.8% probability of a rate cut in September. There’s also a 24% chance that there will be no rate cuts throughout 2024.

Goldman Sachs has weighed in with its expectations, predicting that the forthcoming inflation reports will show a softening trend. As a result, they maintain their forecast for rate cuts in both July and November. However, they caution that even moderate increases in inflation could push these cuts further into the future.

The long-term trajectory for the Fed’s actions hinges on the inflation rate’s approach toward the 2% target. Goldman Sachs’s baseline scenario suggests that inflation will continue to decrease, paving the way for further rate reductions as the Fed works to normalize the funds rate.

In contrast, UBS presents a slightly different outlook. Citing stronger economic data, UBS predicts that the first rate cut might only occur in September 2024. They expect the Fed to make future decisions on a meeting-by-meeting basis, contingent on incoming data. As the FOMC members gather, their perspectives range across a spectrum from dovish to hawkish.

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