US Fed meet outcome today: Two possible scenarios that Dalal Street can look at

Consumer price inflation rose 0.4% in February and 3.2% from a year ago, which was higher than market expectations.Meanwhile, the non-farm payrolls rose by 275,000 in February, which surpassed market expectations.

According to the CME FedWatch tool, there is a 99% probability of the federal funds target range being retained at 5.25-5.50%. A month back, around 10% probability was given for a cut in rates by 25 basis points in the March meeting.

This indicates that rather than the policy action, the Street’s focus will be on what is likely to happen in the coming months and whether the Fed chief Jerome Powell will offer some clues on the same.

Securities has predicted two possible scenarios in the Fed meeting outcome.

The first scenario is the widely anticipated status quo by the central bank, which has been largely discounted by market participants.

The question that then arises is whether a rate cut will happen in June, something that the bond market participants are expecting.

While the timing and scope of rate cuts could come from the Fed’s dot plots, Reliance Securities expects the Fed to change its earlier guidance on rate cuts for 2024.

In December, the Fed had guided for three rate cuts in 2024, totalling 75 basis points.

However, Reliance Securities expects the central bank to change it to two rate cuts given the sticky inflation despite the economy staying strong.

On the contrary, Amit Goel of Pace 360 expects the central bank to stand by its earlier guidance.

“We anticipate the updated dot plot to reveal that the median FOMC participant still expects 75 bps of rate cuts this year, resulting in a mid-point anticipated fed funds rate of 4.6% by year-end,” he said.

The second possible scenario predicted by Reliance Securities is of a slightly hawkish tone on rate cuts from the Fed.

“It is very unlikely that the Fed could project 3 or more rate cuts in March due to elevated inflation,” Reliance Securities said.

If indeed the central bank mentions 3 or more rate cuts, it will be bearish for the Dollar index, the brokerage firm said.

The last two inflation data points have been slightly higher than expected and Fed officials have indicated that they want to wait longer until they get an assurance of the direction of inflation towards the targeted 2%.

“We expect the Fed to start cutting rates by the 2nd half of the year. However, incoming data on inflation and employment numbers will be the key to decide how early the rate cycle can reverse,” said Mukesh Kochar, national head of wealth at AUM Capital.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)