MNI Fed Preview-Apr 2024: Disinflation Delayed, Not Yet Denied

EXECUTIVE SUMMARY:

• Persistently high inflation readings to start the year have shaken the FOMC’s confidence in initiating rate cuts, but the April 30-May 1 meeting is too soon for them to reconsider their easing bias.
• Though Chair Powell could confirm that a June cut is a doubtful prospect unless major surprises emerge, he is likely to affirm that the FOMC currently sees a higher-for-longer policy as appropriate and sufficient to quell inflation.
• In other words, rate hikes are not at all the Committee’s base case – though the degree to which Powell plays down this possibility will be key to the market’s takeaway from the meeting.
• Changes to the Statement are likely to be limited, with the forward rate guidance remaining intact, though the Committee’s characterization of recent inflation will be scrutinized for any hawkish shift.
• The main potential policy shift at this meeting is to the balance sheet, with a good chance that the Committee will announce that it will soon – if not immediately - slow the pace of asset runoff.
• MNI’s FOMC Hawk-Dove Spectrum has effectively been moved up a notch across the board toward the “more hawkish” end for all participants since our March meeting preview.

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FedPrevMay2024.pdf