Mar 18, 2024 - Economy

What to expect from this week's Fed meeting

Illustration of a stack of bills balanced on a nickel with a penny and quarter see-sawing on top

Illustration: Sarah Grillo/Axios

When you're trying to set policy based on data — as the Federal Reserve aims to do — there are two mistakes you can make: overreacting and underreacting. The Fed now faces both risks.

Why it matters: At their policy meeting this week, officials will have to react to a recent run of elevated inflation data.

  • They must decide whether the latest numbers are enough to second-guess their basic view of the economy — that inflation is on a decisive downward course and it will soon be time to cut interest rates to avoid unnecessary economic pain.
  • On one hand, monthly data is inherently volatile, and it is wise to overlook what may be temporary swings. But take that logic too far and you can end up setting policy based on your own expectations rather than the on-the-ground reality.

Flashback: In December, the last time Fed leaders issued formal written projections, the median official anticipated three rate cuts in 2024, with the inflation measure the Fed targets falling to 2.4% this year.

State of play: This week, Fed officials will update those quarterly projections — and the January and February inflation numbers have not cooperated.

  • For example, the Consumer Price Index excluding food and energy has risen at a 4.2% annual rate over the last three months, far above the 2.6% notched this past summer.
  • The Producer Price Index and the Personal Consumption Expenditures price index the Fed targets have both started 2024 on the high side as well.

Of note: The February CPI and PPI numbers came in after Fed officials entered their customary "blackout" period before a policy meeting, in which they do not speak publicly. Predicting how the numbers may have affected officials' policy views is therefore educated guesswork by Fed watchers.

Between the lines: Fed officials have not seemed ready to chuck out their 2024 playbook, but every round of worrying inflation data may reduce their confidence that they can stick to it.

  • They have a number of ways to signal the extent of those worries this week. One is by ratcheting down their forecasts for the number of rate cuts they anticipate.
  • Even if the median projection is unchanged, a handful of officials tweaking their forecasts could create a big shift in the average path of rate cuts for both 2024 and 2025, implying the balance of risks has shifted toward higher rates ahead.

What's next: The Fed's policy statement and updated projections are due out at 2pm ET Wednesday, with chair Jerome Powell's press conference starting at 2:30.

Go deeper