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• All eyes are on the FOMC members' projections during the 20 March meeting.
• US Fed aims to avoid triggering a recession while steering the economy towards a more neutral stance.
• Signs of a cooling job market and easing inflation suggest a shift in economic dynamics.

The U.S. economy’s robust growth, employment, and inflation figures have left little room for the Federal Reserve to consider immediate rate cuts.

Despite this, Federal Reserve Chair Jerome Powell suggested the policy rate might have reached its peak in this tightening cycle.

This statement has led to speculation about potential rate reductions, possibly starting in June.

Focus on FOMC projections

All eyes will be on the FOMC members’ projections during the 20 March meeting.

The Federal Reserve’s December forecast hinted at a preference for gradual rate cuts throughout 2024 and 2025.

Market analysts and investors are keen to understand how recent economic developments might influence these projections and the Fed’s monetary policy approach moving forward.

Cooling inflation aids prospects of rate cut

The U.S. economy is expected to experience a slowdown, with consumer spending anticipated to be constrained by higher borrowing costs and depleted pandemic-era savings.

Signs of a cooling job market and easing inflation, albeit still above the Fed’s 2% target, suggest a shift in economic dynamics.

These factors play a crucial role in the Fed’s decision-making process concerning rate adjustments.

When will US Fed cut rates?

The Federal Reserve aims to avoid triggering a recession while steering the economy towards a more neutral monetary stance.

Economists at Wells Fargo do not expect any policy changes from the FOMC at its meeting next week

With projections indicating room for significant rate cuts, the central bank’s strategy will be closely watched.

Economists expect a series of rate reductions beginning in June, aiming for a “soft landing” for the economy.

FX market and dollar dynamics

The dollar’s position remains strong, supported by its favourable yield position.

However, the FOMC meeting’s outcome could influence market sentiment, especially concerning future rate cuts and their implications for currency valuations.

Analysts advise caution, suggesting that hawkish expectations may be misplaced, with the Fed likely to continue emphasizing the importance of forthcoming economic data.

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