The decline in U.S. stocks on Wednesday followed robust consumer spending data, despite a minor revision to fourth-quarter 2023 U.S. gross domestic product (GDP) growth. The report, released ahead of the Federal Reserve’s preferred inflation gauge due Thursday, echoed the cautious sentiments expressed by Fed officials in recent weeks.
New York Fed President John Williams emphasized the central bank’s commitment to addressing inflation, stating that there is still progress to be made in this endeavor. Similarly, Atlanta Fed chief Raphael Bostic advocated for patience regarding policy adjustments. These remarks underscored the Fed’s reliance on incoming data to inform its policy decisions.
The U.S. dollar exhibited slight weakness against major currencies after a previous ascent on Wednesday.
Thursday’s release of the core personal consumption expenditures (PCE) gauge is expected to shed light on the challenges faced by the central bank in achieving its 2% inflation target. The PCE data is anticipated to align with recent Fed commentary, indicating a reluctance to hastily implement monetary policy easing measures.
Market participants are currently pricing in approximately 80 basis points of easing by year-end, closely mirroring the outlook conveyed by officials in December. This projection suggests the possibility of three rate cuts in 2024, considering the Fed’s historical pattern of adjusting rates in increments of 25 basis points. To provide context, at the beginning of February, swaps were indicating nearly 150 basis points of cuts for the year.