U.S. inflation still above target—current rates will likely persist at the upcoming meeting, but may be lowered soon.
- CPI data for February 2024 will be released on 12 March 2024 at 8:30 a.m. ET, shortly before the Federal Reserve's meeting.
- Persistently high inflation means the Fed is unlikely to lower rates at the upcoming meeting on 20 March.
- Although rate cuts are only expected later in the year, the U.S. dollar is weak as markets have priced in the cuts.
Consumer Price Index (CPI) and Core Consumer Price Index data for February 2024 will be released by the U.S. Bureau of Labor Statistics on Tuesday, 12 March, at 8:30 a.m. ET. This timing is approximately one week before the next meeting of the U.S. Federal Reserve scheduled for 20 March.
Interest rates are expected to decline in 2024, with most of the cuts anticipated in the year's second half. According to the CME FedWatch Tool, markets predict five cuts by December 2024, possibly bringing short-term rates just above 4% by year-end. Meanwhile, inflation, which peaked in mid-2022 and then declined sharply before summer 2023. However, the rate of decline has now slowed down. There are signs of increasing monthly inflation in early 2024, with the headline CPI projected to rise by 0.4% for February and by 0.3% when excluding food and energy, known as core CPI. This results in annual inflation hovering near or above 3%, compared to the Federal Reserve's 2% target.
Octa analyst notes that the Fed is considering reducing interest rates—a shift from 2023's focus on rate hikes. However, cutting rates too soon may lead to faster price increases if it boosts spending. The Federal Reserve is not as worried about a major jump in inflation but wants to prevent any lingering inflation, especially from services like housing, which they are closely monitoring. According to the latest meeting minutes, officials expressed optimism about the success of the Fed's policy in reducing inflation rates despite cautioning against hasty policy adjustments but emphasising that future rate hikes were likely over. He also said that this explains why the Federal Open Market Committee might delay rate cuts in early 2024 to monitor the situation closely instead.
If inflation exceeds forecasts, the U.S. dollar is expected to rise due to potential delays in rate cuts. Conversely, if inflation falls below forecasts, it is likely to decline relative to other currencies. The EURUSD pair may rise, with a close above 1.0960 required to reach the next target of 1.1080