Inflation frustration may prompt Fed to dial back rate-cut outlook

, potentially signaling fewer interest rate cuts and a later start to the policy easing than they previously had estimated.

But with inflation still running well above the Fed’s 2% target and coming in stronger than expected in the first two months of this year, traders are pricing a 40% chance that the first rate cut only happens at the July 30-31 meeting. Nomura is among a minority but growing number of forecasters who believe Fed policymakers this week will trim the number of their anticipated rate cuts this year to just two quarter-percentage-point moves, from the three that U.S. central bankers projected in December.

“The main message from them is, they can be patient,” said Oscar Munoz, chief U.S. macro strategist at TD Securities. Either way, Munoz expects policymakers to project a slightly higher inflation rate for 2024, perhaps 2.6% by the Fed’s preferred inflation measure, the personal consumption expenditures price index, up from 2.4% in December.Deutsche Bank economists likewise see an upside risk to the Fed’s inflation forecast, and like Munoz they expect the Fed on Wednesday to stick to the projection of three rate cuts for this year, with a start in June.

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