United States: Look for a low-confidence vote from the Fed

The Federal Reserve will likely signal next week that its confidence that inflation is on a sustained path to 2% has been diminished and that it is prepared to leave interest rates at current levels until it sees clear signs disinflation is back on track. We pushed the first rate cut in our baseline to September and reduced the number of rate cuts in our forecast for 2024 from three to two.

What you will learn:

• We think the Fed will announce next week that it will start slowing the pace at which it is reducing its balance sheet later this quarter. Solid April tax payments and fewer Fed redemptions of Treasury securities will allow the Treasury to keep auction sizes at current levels after three quarters of substantial increases.
• While the headline for Q1 GDP surprised to the downside, the underlying details were solid. The GDP report and the March personal income and spending data showed consumers continuing to spend at a solid clip. Consumers have been depleting remaining excess savings at an accelerated pace, but solid household balance sheets make the low savings rate less of a concern.