The US Federal Reserve is nearing a decision on interest rates as inflation expectations in the country remain well anchored. Despite the price shock over the past two and a half years, professional investor expectations for inflation are at or near long-run averages. The five-year forward, five-year breakeven rate stands at 2.25%, while the five-year forward breakeven index is at 2.2%. The Federal Reserve uses the year-over-year Personal Consumption Expenditures (PCE) index, which currently stands at 2.7%, as its policy variable on inflation. The Fed is expected to ease the policy rate to a still-restrictive rate of 4.75% to 5% by the end of the year. The forecast for May suggests a month-on-month growth of 0.1% and an annual basis growth of 2.6%. The market anticipates one 25 basis-point rate cut in September, followed by another in December, and four more in the next year, bringing the federal funds policy rate to a range of 3.75% to 4% by the end of next year. The five-year inflation forward breakeven rate currently stands at 2.3%, below the cyclical peak of 2.67% recorded on April 19, 2022. [2756eae4]
The US Federal Reserve is considering a rate decision as inflation expectations in the country remain stable. The five-year forward, five-year breakeven rate is at 2.25%, while the five-year forward breakeven index is at 2.2%. The Fed uses the year-over-year Personal Consumption Expenditures (PCE) index, which currently stands at 2.7%, as its policy variable on inflation. The Fed is expected to ease the policy rate to a still-restrictive rate of 4.75% to 5% by the end of the year. The forecast for May suggests a month-on-month growth of 0.1% and an annual basis growth of 2.6%. The market expects one 25 basis-point rate cut in September, followed by another in December, and four more in the next year, bringing the federal funds policy rate to a range of 3.75% to 4% by the end of next year. The five-year inflation forward breakeven rate is currently at 2.3%, below the cyclical peak of 2.67% recorded on April 19, 2022. [2756eae4]
The Federal Reserve's preferred inflation metric has edged down to 2.6%. [d8debfa8]