[FOMC Preview] Focus on the high-probability dot plot with interest rates unchanged

This Thursday (13th) at 03:00 Japan timeThe Fed plans to announce economic forecasts, FOMC statements, policy interest rates, etc.Press conference at 03:30It is planned to be carried out.

Although it is anticipated that there will be no change in interest rates, there is a possibility that comments on the Fed's decision will be more hawkish than before in response to the results of employment statistics the other day. Depending on the results of the inflation rate, there is also a possibility that the Fed will decide that it is necessary to further strengthen its hawkish outlook.

The hawkish Fed will strengthen the appreciation of the dollar, and there is a possibility that the US stock price index, especially the Russell 2000, which is difficult to respond to hawkish Fed news, will fall again.

The Fed will leave interest rates unchanged, and there is a high probability that they will postpone the initial rate cut
The FOMC (Federal Open Market Committee) view that interest rates due to the FOMC statement and the announcement of policy interest rates will remain unchanged at 03:00 Japan time this Thursday (13th).

A series of recently released economic indicators have complicated the outlook for the US economy and undermined the Fed's confidence that inflation is moving smoothly towards its target of 2%.

Many investors will pay attention to the dot plot that the Fed plans to update and try to determine the future of potential interest rates in the US.

Pay attention to dot plots
In response to the surprise of employment statistics data last Friday, the market moved away from the possibility of a September rate cut, and now fully incorporates the December 25 basis point rate cut.

However, the market is expecting interest rate cuts by the Federal Reserve. However, it is difficult to determine whether the Fed will cut interest rates once, or whether it will cut interest rates twice in line with the market's view.

Now that US GDP has decelerated markedly from 4.9% in the 3rd quarter of 2023, the rice growth forecast will also be updated. The Atlanta Federal Reserve's GDP forecast for the second quarter has recovered drastically to 3.1% (annual rate), which suggests that the economy is recovering strongly. The Atlanta Federal Reserve Bank's forecast takes into account data to be announced in the future, and it is important to note that it does not anticipate the remaining data for June, which would have an impact on actual numbers.

The latest employment statistics exceed expectations
The number of non-farm payrolls announced on Friday dealt a further blow to the US Federal Reserve (Fed)'s 2024 interest rate cut observations. The US economy once again betrayed expectations and increased employment above expectations.

The previous month's figures were revised downward, and although the growth in the number of employed people was slower than expected, the fact that the resilience of the US job market continues to be strong indicates that the US economy is still strong, and the outlook for private consumption is also strong along with that.

The Federal Reserve is closely monitoring the employment situation, but so far there are no signs that employment will weaken, and pressure to cut interest rates is weakening. The number of employed people this time has simply stuck a new nail in the idea that interest rate cuts will be implemented in 2024.

US CPI
The most important economic indicator for this week is the latest US inflation rate.

The inflation rate has declined sharply from the 2022 high, but the slowdown has stagnated in the 3% range, which exceeds the Fed's target of 2%.

Senior Federal Reserve officials have repeatedly emphasized the need to move further in the direction of 2% before considering interest rate cuts, and it is unlikely that this week's announcement will bring about the necessary movement in the inflation rate.

The Fed is likely to reduce interest rate cuts in 2024
There is a high possibility that the Fed will reduce interest rate cuts in 2024. What will receive the most attention at the upcoming Fed meeting is probably not what policymakers will do about interest rates, but what they will talk about.

Policy makers plan to update the Economic Forecast Summary (SEP) and explain the outlook for the economy, growth, unemployment, inflation, and interest rates for the next year to consumers and investors. When the Federal Reserve updated its economic forecast last time, the median value of Fed policy makers suggested that interest rate cuts would be implemented three times in 2024.

After the Fed announced the policy interest rate for June, there are only 4 policy meetings left. Economists believe there is no need for rapid interest rate cuts now that economic growth is still solid and inflation is rising.

The reason the Fed cuts interest rates may be more important than when they cut interest rates
The reason the Fed cuts interest rates may be more important than the timing. However, it seems that many investors and consumers are overly interested in the timing of interest rate cuts, but what is more important than that is probably the reason for interest rate cuts.

The best case scenario is for inflation to recover towards the Fed's target of 2% without impacting the job market, and the Fed gradually begins cutting interest rates. However, the reason we should be more concerned about deciding to cut interest rates is probably the deterioration of the economy.

Notably, at the last interest rate cut meeting held in May, Fed officials acknowledged that they think a slowing job market would also be a sufficient reason to cut interest rates -- even if upward pressure on prices is still high. Chairman Powell said at the press conference after the meeting, “I think there is another path the economy can take, which makes people want to consider cutting interest rates.”