Federal Reserve may forecast just two interest rate cuts in 2024 – USA TODAY

After tumbling last fall, inflation has remained stubbornly elevated this year.The split-screen picture raises a pointed question for the Federal Reserve: Is the recent flare-up a blip or the beginning of a tougher slog in its two-year inflation fight?Fed officials will likely clarify their view at a two-day meeting that concludes Wednesday. Although the central bank almost certainly won’t reduce its key interest rate, it is set to release new forecasts for the economy, inflation, and rates that themselves could affect growth and move markets.Several leading economic research firms, including Barclays and JPMorgan Chase, predict Fed policymakers will lower their forecast to two rate cuts this year from three in December while raising their projections for growth and inflation, according to their median estimates.When does the Fed meet?Here is when the central bank meets to decide on rates.With consumer price increases ticking higher in January and February, “It will be hard for them to continue to show three cuts,” says Jonathan Miller, senior U.S. economist at Barclays.Others, including Goldman Sachs and Morgan Stanley, expect the Fed to stick to its forecast of three rate cuts on the belief that inflation will continue to slow steadily. That approach likely would bolster stocks, business confidence and the economy as consumers and companies look forward to lower borrowing costs.Gregory Daco, chief economist of EY-Parthenon, thinks the Fed will revise down its estimate to two rate cuts but that would be a mistake.“I think they’re probably overreacting to very noisy data,” Daco says, meaning the inflation numbers

reflect measurement quirks and one-off price gains rather than underlying trends.Futures markets estimate the Fed will start trimming rates in June and approve three quarter-point cuts this year. Fed officials have penciled in another four rate decreases in 2025.How much has the Fed raised interest rates?Since March 2022, the Fed has hiked its benchmark short-term interest rate from near zero to a 23-year high of 5.25% to 5.5% to tame inflation. With its preferred yearly inflation measure – the personal consumption expenditures (PCE) index – falling swiftly from a 40-year high of 7%, the Fed has held off on increases since July.Economists attribute the progress to the unwinding of pandemic-related product and labor shortages as Americans sidelined by COVID returned to the labor force, joining a surge of immigrants. Also, consumers’ strong demand for furniture, appliances and other goods while they stayed home during lockdowns has shifted to services such as dining out and traveling.Has inflation gone down recently?In January, however, consumer prices overall rose 0.3% from the previous month, much faster than the previous trend.And a core measure that excludes volatile food and energy items and that the Fed watches more closely jumped even more sharply, by 0.4%. The readings still lowered annual inflation to 2.4% and the core measure to 2.8% moderately above the Fed’s 2% goal.Fed Chair Jerome Powell told Congress recently the agency is “waiting to become more confident that inflation is moving sustainably to 2%.”Last month, though, a different inflation gauge, the consumer price index, as well as the core CPI,

both rose a hefty 0.4%, according to a report last week, intensifying the concerns. The cost of services such as rent, auto insurance, car repairs and airline fares continued to rise briskly. Even more worrisome: Prices for goods that had been falling or rising modestly, such as used cars and clothing, climbed notably higher.What is the forecast for inflation in 2024?Millar of Barclays frets that the drop in goods prices has played out. At the same time, military conflict at the Suez Canal and low water levels at the Panama Canal have disrupted global shipping, boosting the risk of still higher goods prices.Meanwhile, he says, average U.S. wage growth, which feeds into service prices, is slowing now that COVID-related worker shortages have eased but only gradually. And rent increases, especially for single-family homes, aren’t moderating as rapidly as anticipated.Barclays expects the February PCE inflation report, which is based partly on CPI and due out next week, will show that prices rose 0.4% in February, nudging annual inflation to 2.5% from 2.4%. It estimates the core measure increased 0.3%, leaving the annual gain unchanged at 2.8%.On Wednesday, Barclays reckons, the Fed will likely raise its 2024 core inflation forecast to 2.6% from 2.4%, suggesting officials believe it will slow just modestly by the end of the year. The research firm, along with several others, also expects the Fed to lift its estimate of economic growth this year to 1.8% from 1.4% in December.Is the US economy strong right now?The economy grew a sizzling 4% in the second half of last year and job growth, while slowing, has been surprisingly r