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Below the Quote on Inflation Nears 2% Mandate, Fed Cautious About Shelter Costs by Dr. Vikas V. Gupta, CEO & Chief Investment Strategist, OmniScience Capital

“The Federal Reserve chose to leave policy rates unchanged, but the overall tone was notably dovish. Economic growth was highlighted in the speech and the dot plot, revised upwards from the previous meeting. Unemployment was also lower than earlier projections. Inflation was acknowledged to be nearing the 2% mandate. However, the Fed is mindful of lower shelter costs, not yet reflected in the PCE inflation data.

It appears that aside from housing, inflation is already within the target range. Once shelter costs are factored in, inflation could dip below target before the PCE data catches up, potentially necessitating swift and significant rate cuts. Surprisingly, the dot plot projects inflation at around 2.6% by the end of 2024, higher than the previous 2.4%. This discrepancy might imply the Fed's cautious outlook.

It is increasingly likely that rates will be cut in the second half of 2024, lasting 18 to 24 months. A rate cut in June is highly probable, with a reasonable chance of starting in May. Once rate cuts commence, the Fed may need to act swiftly to keep pace with declining inflation, possibly involving 50 basis point cuts.”

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