Will the US Cut Interest Rates 1-2 Times or Not at All This Year? This Week's FOMC Focus: the 'Dot Plot'

November 11-12 FOMC Regular Meeting
Base Rate Likely Held Steady at 5.25-5.5% for 7th Consecutive Time
Dot Plot and Economic Outlook Summary Updated

Ahead of this week's June Federal Open Market Committee (FOMC) meeting of the U.S. Federal Reserve (Fed), global financial markets are focusing on the Fed officials' interest rate cut outlook reflected in the 'dot plot.' Experts predict that the Fed will shift its initial forecast of three rate cuts this year to one or two cuts.

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According to the Fed on the 9th (local time), the regular FOMC meeting will be held on June 11-12. At this fourth FOMC meeting of the year, the Fed is likely to keep the benchmark interest rate steady at 5.25-5.5% for the seventh consecutive time. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market reflects a 99.4% probability that the Fed will hold rates steady at the June FOMC meeting.

The key issue is the direction of revisions to the dot plot, which reflects FOMC members' interest rate projections. In the March dot plot, the Fed presented a median federal funds rate forecast of 4.5-4.75% for this year, maintaining the previous outlook (from December last year) of three 0.25 percentage point rate cuts within the year. However, with the U.S. economy performing well and employment remaining strong, there is speculation that the number of rate cuts projected in this FOMC meeting will decrease.

According to a Bloomberg survey conducted from May 31 to June 5 of 43 economists, 41% of respondents expected the Fed to revise the dot plot to show two rate cuts this year. The first rate cut is anticipated to occur at the September FOMC meeting, which is the last before the U.S. presidential election on November 5. Another 41% of respondents predicted only one rate cut or no cuts at all within the year.

This reflects the fact that inflation still significantly exceeds the Fed's 2% target, and the U.S. labor market remains strong. The Fed's preferred core Personal Consumption Expenditures (PCE) price index rose 2.8% year-over-year in April, slightly above the market forecast of 2.7%. Messages from Fed officials are also far from signaling rate cuts. Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, recently stated in an interview with foreign media that Americans would prefer a recession over inflation and that the current interest rate level should be maintained longer.

The Fed will also update its Summary of Economic Projections (SEP). Economists participating in the Bloomberg survey expect the Fed to slightly raise its inflation forecast from the previous 2.6% (based on core PCE prices) while maintaining growth and unemployment forecasts at 2.1% and 4%, respectively.

Anna Wong, Senior U.S. Economist at Bloomberg Economics, analyzed, "The new dot plot at the June FOMC meeting will reflect two 0.25 percentage point rate cuts. Given the continuous decline in U.S. growth indicators, Fed Chair Jerome Powell is expected to take a relatively dovish stance during the post-FOMC press conference."

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