The Federal Reserve is expected to maintain its current rates, as traders forecast the first rate cut to occur in June 2024, based on interest-rate futures pricing. This projection comes despite robust consumer spending and persistent price pressures, as inflation begins to ease off.
The Commerce Department’s Bureau of Economic Analysis revealed that the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, and its core rose by 3.4% and 3.7% year-on-year in September respectively. This is a decrease from the 3.8% reading in August, yet still exceeds the Fed’s 2% inflation target.
Consumer spending surged by 0.7% in September from August, surpassing economists’ projections. Despite this, futures contracts suggest no rate increase from the current 5.25%-5.5% policy rate in the upcoming meeting and less than a 20% chance of a rise by year-end, according to the U.S. central bank’s target policy rate.
Analysts at High-Frequency Economics believe this combination of strong consumer spending and slowing inflation will keep the Federal Open Market Committee (FOMC) on hold throughout 2023.
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