FED to Stay the Course and Delay Timing of First Rate Cut
The Federal Open Market Committee (FOMC) of the Federal Reserve is widely anticipated to maintain the current interest rates unchanged at the conclusion of its two-day meeting on Wednesday. The official statement and the summary of economic projections to be released will be closely scrutinized for insights into the future trajectory of US interest rates.

Inflation Shows First Signs of Returning to 2% Trajectory – Insufficient to Restore Confidence
Despite some positive signs, the Federal Reserve is expected to reiterate a message consistent with the May meeting, indicating that restrictive monetary policies will remain in place until there is more confidence that inflation is moving towards the 2% target. April’s year-on-year inflation print was the first to show a decline since January, marking a significant development after a first quarter characterized by high inflation. However, this has not been enough to solidify confidence among the committee members.
US Core CPI Month-on-Month

Another source of anguish for the Fed has been the month-on-month core CPI print which failed to move notably below the 0.4% level until the April data – revealing little let up in price pressures.
Adding to the complexity, the May Consumer Price Index (CPI) data will be released just hours before the Fed’s statement, providing a crucial data point that could influence market expectations. Particular attention will be paid to services inflation and super core inflation (services inflation excluding housing and energy), as the Fed considers these indicators crucial for assessing inflationary pressures in the economy.
US Dollar’s Continued Ascent Reliant on Inflation and the Dot Plot
The US dollar experienced a surge following the robust NFP report on Friday. However, the longer-term outlook remains bearish, as there is an expectation that interest rates will eventually need to be lowered either this year or next due to the economic strain from prolonged restrictive conditions. This expectation constrains the dollar’s upside potential unless inflation data persistently exceeds expectations.
A lower CPI print on Wednesday could lead to a weakening of the dollar, as inflation remains the primary concern for the Fed. Recent inflation prints have not been significantly favorable, making a sharp drop in inflation unlikely. Market participants anticipate just one rate cut this year, but the dollar could decline if the Fed reduces its rate cut expectations for 2024 from three to two. Key levels to watch include 105.88 on the upside and 104.70, the 200 Simple Moving Average (SMA), and 104.00 on the downside.
In summary, the upcoming Fed meeting, combined with the latest inflation data, will be pivotal in shaping market expectations and the future direction of US monetary policy and the dollar.