US Fed PREVIEW: More Delays Likely, Slowing Economy And Sticky Inflation Major Risks To US Economy

US Federal Reserve is expected to cut rates in September or December, according to top economists in the world, who just a few months back predicted the rate cut cycle to begin as early as June.

Those change in expectations is primarily driven by a slowing economy and the current inflation rate - which remains far from the Fed's 2 percent target mandate.

Largely, the US central bank is predicted to keep policy rates unchanged for the seventh consecutive meeting on Wednesday. However, there needs to be more clarity in officials' rate projections.

"At the June FOMC meeting, we see the Fed revising its outlook in favor of slower growth and firmer inflation. It should project two rate cuts this year and a cutting cycle that begins in September," said said Michael Gapen, chief U.S. economist at Bank of America.

"Incoming data should give the Fed confidence that the economy is cooling, but it needs more evidence of disinflation to cut. What it needs now is time."

The central bank increased the fed funds rate significantly starting in March 2022 in order to fight stubbornly hot inflation. Since July last year, borrowing costs have remained at their highest in twenty years.

Goldman Sachs economists predicted the US central bank to cut rates twice this year - in September and in the fourth quarter. That is inline with market expectations which show a slighgtly more than 50% chance of a cut in September, according to CME FedWatch Tool.

What Is The Market Expectations On Rate Cuts?

Well, stock markets across the world will most likely celebrate a rate cut when it happens. But sentiments indicate that a Fed rate cut is not happening anytime soon.

The US Labor Department will release new inflation data on Wednesday, just hours before the Fed's 2 pm EDT update. Fed chairman Jerome Powell's press conference will follow at 2:30.m. EDT.

The central bank raised rates aggressively in 2022 and 2023 to address a rise in inflation. Now, it is expected to keep the benchmark interest rate in the 5.25%-5.50% range set last July.

"The US Federal Reserve will keep interest rates unchanged at 5.25-5.5% on Wednesday and will indicate that September is the earliest opportunity to seriously consider an interest rate cut. The main focus will be their updated dot plot, which outlines the individual members' views on the path for interest rates," said said James Knightley, Chief International Economist at ING.

"With inflation having remained sticky and the latest jobs numbers beating all expectations, we expect them to push their projections for rate cuts back next week, so they end up with two cuts in 2024 and four in 2025 instead of three and three."

The Reserve Bank of India (RBI) Governor, Shaktanta Das, stated on Friday that the RBI's rate-setting panel will prioritise domestic conditions when deciding on rate cuts. This approach means the panel will not necessarily follow the Fed's decisions.

Das highlighted that the focus will remain on India's unique economic circumstances. The statement came amid speculations on whether India would mirror the US in monetary policy adjustments. Das's comments underline the RBI's commitment to a strategy tailored to India's economic needs.