US Fed meet begins today: What to expect amid sticky inflation? Top experts share their views

US Fed meet begins today: A key event for the market this week is the US Federal Reserve's policy meeting. The market is expecting no rate cut this time, as inflation remains above the Fed's 2 per cent target and the Fed would not want to risk a premature rate cut, which could potentially exacerbate inflation amid fluctuating commodity prices driven by geopolitical tensions.

The US consumer price index (CPI) rose 0.4 per cent month-on-month (MoM) and 3.5 per cent year-on-year (YoY), above the Street expectations of 0.3 per cent MoM and 3.4 per cent YoY, according to data released by the Labor Department's Bureau of Labor Statistics on Wednesday, April 10.

Meanwhile, growing at the slowest pace in two years, the US GDP increased at a 1.6 per cent annualised rate in the March quarter.

Also Read: US Fed meet ahead: What do dimming rate cut hopes mean for Indian stock market?

The market will keenly observe how the Fed handles the conundrum of growth and inflation.

Mint spoke to several experts to understand what they expect from the US Fed in its May policy meet. Here's what they said:

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services

The Fed is likely to pause in this meeting also. The latest core inflation in the US has come at 3.7 per cent against an expectation of 3.4 per cent. 

This leaves no room for the Fed to cut rates anytime soon. Since the US economy is slowing down, two rate cuts are possible this year, but this will be backloaded.

Also Read: All eyes on Federal Reserve’s interest rate decision and jobs data

Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities

The US Fed will mainly look at the inflation numbers which have come in higher than expected at 3.5 per cent. 

Despite keeping the interest rates elevated at 5.5 per cent for the past 10 months, the US rate of inflation has not fallen below the Fed’s comfort level of 2 per cent.

The latest quarterly GDP growth numbers were below expectations at 1.6 per cent.

Thus, the US Fed might be worried about stagflation. Our expectation is that the US Fed will continue to keep the interest rates unchanged at 5.5 per cent.

The decision is unlikely to have any meaningful impact on the markets. However, markets will closely watch out for the commentaries from the Fed governor.

Palka Arora Chopra, Director, Master Capital Services

The Federal Reserve bases its monetary policy decisions on a number of factors, such as inflation, employment statistics, economic growth, and global economic developments.

The Fed's decision-making process is heavily influenced by its dual mandate, which calls for promoting price stability and maximum employment. The Fed also considers how its policies may affect the larger financial system and issues related to financial stability.

Another important factor to take into account is inflation, which the Fed seeks to maintain at or below its target rate of 2 per cent.

Shrey Jain, Founder and CEO of SAS Online

The US Federal Reserve is expected to continue its policy of being data-driven. Rising crude oil prices and more-than-expected inflation numbers will be the key variables. 

At the same time, the slowest quarterly growth in GDP will be the cause of concern. US Federal Reserve will pay attention to the flaring commodity prices, the possible supply chain disruptions, and the impact of these on US economic activity.

Vijay Singh Gour, Senior Analyst at Choice Broking

Inflation has consistently ruled above the 2 per cent target level due to rising commodity prices amid geopolitical tensions. 

We do not see inflation reaching the target level in the short term. Hence, currently, there is no rate cut.

For CY24, the Fed expected three rate cuts earlier; however, rising inflation has posed a question mark. We expect one to two rate cuts provided inflation data should support.

Pravesh Gour, Senior Technical Analyst, Swastika Investmart

The Federal Reserve's monetary policy decisions are shaped by a diverse array of factors. 

These encompass key economic indicators such as GDP growth, inflation rates, unemployment levels, and consumer spending. 

Central to its approach is maintaining inflation around 2 per cent through targeted policies.

Additionally, the Fed places significant emphasis on achieving maximum sustainable employment. 

It closely watches financial market dynamics, including interest rates, stock values, and credit conditions, recognizing their potential impact on the broader economy.

Global economic trends, fiscal policy choices, and public expectations management also weigh heavily in the decision-making process. 

Overall, the Fed employs a comprehensive analysis of these factors to fulfil its dual mandate of price stability and supporting full employment.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.