The Federal Reserve is widely expected to keep interest rates on hold at the end of its policy meeting on Wednesday afternoon.
But the bigger question for investors is whether policymakers believe three rate cuts in 2024 are still likely.
The answer may come in the form of the Fed's latest “dot plot.” This is a quarterly updated chart that shows Fed officials' predictions about the direction of the federal funds rate.
The December dotplot revealed Fed officials' agreement to cut interest rates three times by 2024, the first sign that the Fed is ready to begin easing monetary policy.
That forecast is now being called into question after a series of hotter-than-expected inflation readings and cautious comments from Fed officials.
Fed Chair Jerome Powell and others have emphasized in recent months that they want to see inflation fall “sustainably” to its 2% target before starting to cut rates.
read more: Impact of Fed interest rate decisions on bank accounts, CDs, loans, and credit cards
Investors are adjusting their bets on when these rate cuts will begin. At the beginning of the year, we had expected six cuts starting in March, but we now expect three cuts starting in June.
Even the probability of a June rate cut has declined in recent weeks.
The Fed last raised interest rates in July and has since chosen to keep them in the range of 5.25% to 5.50%, the highest level in 23 years.
The Fed will announce its policy decisions at 2:00 p.m. ET, followed by Chairman Powell's press conference at 2:30 p.m. ET.
Along with policy decisions and interest rate outlooks, Fed officials are expected to release updated forecasts for inflation, GDP growth and unemployment.
Separately, investors wondered at Powell's press conference how he plans to slow down the Fed's shrinking of its massive balance sheet, a little-known policy tool it uses to tighten financial conditions. We will also listen to discussions about whether
Over the past two years, the Fed has slashed about $1.5 trillion in Treasury and mortgage bonds that it accumulated in an effort to stimulate the economy at the beginning of the pandemic, maturing and removing about $100 billion from its balance sheet each month.
Now that inflation is declining, the question is when the Fed will start slowing the pace of inflation.
What policymakers want to avoid is the kind of embarrassing disruption to financial markets that occurred the last time the Fed tried to shrink its balance sheet at the end of 2010.
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