Future Fed Projections Will Signal Deeper Cuts Than Previously Expected: Citi By Investing.com

Investing.com — The Fed’s updated projections are likely to show policymakers are preparing to cut rates more deeply than previously expected to support the economy, Citi analysts said in a recent note ahead of the bank’s monetary policy meeting centers from next week.

“Fed officials will need to significantly update their Summary of Economic Projections next week,” analysts said. “The unemployment rate at the end of this year will be revised upwards and the path of policy rates will be revised downwards.”

Analysts expect the Fed’s voting members’ projections, or “points,” to show 100 basis points of cuts this year, compared with the Fed’s June points showing just a 25 basis point cut.

Expectations for a more accommodative Fed have been driven by the recent slowdown in inflation, with Citi expecting inflation data due on Wednesday to show a fourth straight month of slower growth.

Since the market expects about 105 basis points of cuts, analysts said, a midpoint of 75 basis points of cuts “would be flat relative to expectations.”

The rate cut path is not straightforward, analysts say, as the size of the rate cut in September is likely to significantly influence how deeply the Fed cuts rates at consecutive meetings.

A cut of more than 50 bps in September, which is Citi’s base case, could lead most Fed officials to support cuts of 25 bps in November and December, leaving a midpoint involving a total of 100 bps of cuts for the year. But if the Fed offers a 25bp cut in September, that gives them the option to signal to the market that they could go to 50bp at a future meeting.

The Fed’s upcoming decision and updated summary of economic projections will be closely watched, especially as economic strength — or lack thereof — has sparked widespread debate

The Fed’s upcoming decision and updated summary of economic forecasts will be closely watched at a time when economic strength, or lack thereof, has sparked wide debate.