The upcoming two-day policy meeting of the US Federal Reserve onJanuary 30, has heightened expectations among market participants. While the consensus suggests that interest rates will remain unchanged during this meeting, attention is focused on signals regarding the initiation of rate reductions. The prevailing sentiment is that the Federal Reserve may embark on rate cuts starting in May or June, driven by the resilience of the US job market and inflation consistently surpassing the central bank's 2 percent target.
As the Federal Reserve gears up for its first Federal Open Market Committee (FOMC) meeting of 2024, investors are keenly awaiting commentary from Fed Chair Jerome Powell on the trajectory of inflation. Coin Gabbar emphasised the importance of the language used in the policy statement and Powell's post-meeting press conference. Recent statements from officials indicate a cautious and calibrated approach to potential rate cuts, dispelling concerns of rushed decisions.
Jasani predicts that the initial rate cut may occur in May or June, with a total reduction ranging between 75-100 basis points throughout 2024. However, Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, suggests that the market expects interest rates to remain unchanged in the upcoming meeting, with a high probability of rate cuts commencing in May. Sheth believes that rate cuts are more likely to unfold in the second half of 2024, emphasising the need to monitor the Fed's stance and commentary, particularly considering the robust 3.3 percent GDP growth in the December 2023 quarter.
Despite the anticipation surrounding the meeting, the market has already factored in a status quo on rates this time, potentially limiting the immediate impact on market sentiment. Gaurang Shah, Senior Vice President at Geojit Financial Services, downplays the significance of the market reaction, suggesting that the Fed's statements would need to be exceptionally impactful to drive major movements.
Shah advises investors to prioritise domestic fundamentals, highlighting the difficulty in predicting when the Fed will commence rate cuts. "It is difficult to preempt as to when they will start cutting the rates, but I think we should concentrate more on our domestic data points," Shah commented.
Looking ahead, an additional perspective on the potential future impact of the Federal Reserve's decisions is crucial. With inflation showing signs of slowing down and the economy maintaining relative strength, Vaibhav Shah, Fund Manager at Torus ORO PMS, believes the Fed will likely maintain the fed funds rate unchanged. He emphasises the importance of observing whether the Fed maintains its dovish stance or surprises the market with a hawkish tone, highlighting the impact on market expectations.
In conclusion, as the market awaits the outcome of the FOMC meeting on January 31, the Federal Reserve's statements and future guidance will be closely scrutinised for insights into the potential timing and nature of rate cuts, with implications for both domestic and global economic dynamics. The last meeting of Federal Reserve was in December 2023.
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