Federal Reserve Likely to Keep Rates Unchanged at 97.8% Probability

The Federal Reserve is widely expected to maintain its current interest rate policy in June, with a 97.8% probability of keeping rates unchanged. This consensus among market participants reflects a cautious approach by the Federal Reserve, influenced by various economic indicators and the overall economic outlook.

The core PCE Price Index, a key measure of inflation, has decreased to a four-year low, dropping from 2.7% to 2.5% in April. This slowdown in inflation suggests that price pressures are easing, which may contribute to the Federal Reserve's decision to keep interest rates unchanged. However, policymakers are exercising caution, awaiting the long-term effects of trade policies to become more apparent. The decline in inflation aligns with a broader economic slowdown, as American consumers began to "apply the brakes" in April, while inflation remains mild.

Consumer confidence in the United States rebounded in late May, breaking free from the record low levels seen at the beginning of the month. Concurrently, expectations for long-term inflation among consumers also eased, reflecting a reduction in concerns about the economic outlook following the temporary reduction of some import tariffs between the U.S. and China. This improvement in consumer sentiment may also influence the Federal Reserve's decision to keep interest rates unchanged, as it indicates a more stable economic environment.

The Chicago PMI for the United States in May was 40.5, which is lower than expected. This decline in manufacturing activity may also contribute to the Federal Reserve's decision to keep interest rates unchanged, as it suggests a slowing economy that may not require immediate monetary policy adjustments. The Federal Reserve's favorite inflation indicator, the core PCE Price Index, remains moderate, which may also influence the decision to keep interest rates unchanged.

The Federal Reserve's official Lorie Logan delivered a speech this week, systematically explaining the complex situation currently facing the U.S. economy. Logan highlighted the uncertainty in the economic outlook and the need for patient observation in policy decisions. This cautious approach may also contribute to the Federal Reserve's decision to keep interest rates unchanged, as it indicates a willingness to monitor the economic situation closely before making any adjustments to monetary policy.

In summary, the probability that the Federal Reserve will keep interest rates unchanged in June is 97.8%, reflecting a strong consensus among market participants that the current monetary policy stance is appropriate given the economic outlook. The decision to keep interest rates unchanged is likely influenced by a variety of economic indicators, including the slowdown in inflation, the improvement in consumer sentiment, the decline in manufacturing activity, and the uncertainty in the economic outlook. The Federal Reserve's cautious approach to policy decisions may also contribute to the decision to keep interest rates unchanged, as it indicates a willingness to monitor the economic situation closely before making any adjustments to monetary policy.