Federal Reserve’s decision this week could be the prelude to a March interest rate cut

Federal Reserve policymakers may finally be right on the verge of cutting interest rates.

Going into this week’s two-day policy meeting, which wraps Wednesday afternoon in Washington, investors are assigning roughly even odds to the prospect that the US central bank will start lowering borrowing costs at its next decision in March.

That makes Fed Chair Jerome Powell’s press conference, and any signal he may or may not choose to send, of critical importance. It all comes down to how Powell and his colleagues have been reading the recent spate of economic data.

On one hand, inflation numbers continue to surprise to the downside. The Fed’s preferred gauge decelerated to 2.9 per cent in December, crossing below 3 per cent for the first time since early 2021, according to data published Friday.

On the other, consumer spending continues to be surprisingly robust. It’s undoubtedly getting a boost from the downdraft in inflation, but the strength still may keep some worried that price pressures could mount once again.

Fed decision aside, we’ll get more US data in the week ahead. Most important will be the monthly jobs report on Friday. Job openings and consumer confidence data on Tuesday – and a quarterly employment cost index release on Wednesday, during the Fed meeting – will also help tell how strong the outlook for spending really is.