Economist: Economic data awakens hawks, Powell will remain neutral again

Ernst & Young chief economist Gregory Daco said the Fed is expected to keep interest rates unchanged at 5.25-5.50% tonight. The policy statement will remain largely unchanged, as we believe policymakers will only add negative qualifications in the statement when they are ready to signal the start of an easing cycle (the Committee believes that it will be more confident that inflation will continue to move towards 2%). Previously, lowering the target range was inappropriate) into positive conditions.
The statement is expected to be revised in May to signal an imminent rate cut at the June meeting. The dot plot would show two rate cuts of 25 basis points each in 2024, down from the three in the median forecast in December. Some policymakers worried about inflation may confuse noise in economic data for signals to justify a tougher stance. The May and June meetings could serve as a bellwether for potential rate cuts, and Powell is not expected to be as transparent now as he was in January. However, he is likely to emphasize that policymakers have begun discussing easing, as well as the timing and logic of balance sheet reduction and quantitative tightening processes.