Economic Projections Point to Fed Easing Policy by Year-End as Disinflation Begins

According to the latest data and economic projections, the Federal Reserve may have the confidence it needs to ease monetary policy later this year as disinflation begins in the second half of 2024. The Commerce Department’s April inflation reading is expected to show a moderate decline, with the core rate expected to rise by 0.3% in April from a month earlier, down from 0.4% in March. Economists anticipate a slowing in overall retail sales as well. However, if inflation data returns to showing further cooling, there is debate over whether good economic growth news will be welcomed by the market, as the tradeoff between a soft landing narrative and hot macro data has increasingly threatened the market’s sentiment. Overall, the market’s reaction to the upcoming inflation data is crucial, as bond prices have risen steadily due to fresh signals that the economy and labor market are cooling, allowing the Fed to begin easing monetary policy. A positive reading could extend the current bond market rally, while a negative reading could doom it.