How the Federal Reserve plans to proceed with interest rates will be in focus next week after some recent signs of hotter inflation muddied the outlook. The Fed is expected to keep rates unchanged at the conclusion of its policy setting meeting on Wednesday, but what investors will pay more attention to is an update to the central bank’s dot plot, or the forward projections of individual committee members. In December, policymakers had penciled in at least three quarter-percentage-point rate cuts in 2024. For investors, the risk for the dot plot leans a little hawkish. While most expect the Fed will maintain its projection of three rate cuts this year, some worry the central bank will forecast fewer cuts after a succession of hot inflation prints this week suggested the Fed has a ways to go toward its 2% goal. That’s an outcome that could throw cold water on the recent equity rally. “If we don’t see any meaningful changes to those projections, investors will likely see that as a positive as it would keep expectations for three to four rate cuts this year in depth,” said Sid Vaidya, U.S. wealth investment strategist at TD Wealth. “If, on the other hand, fed funds rate projections move higher, which means fewer rate cuts, that is going to be seen as a negative for markets and will result in volatility, both in fixed income markets, for sure, but will also likely result in volatility for equity markets.” On Friday, stocks registered a losing week even after the S & P 500, for example, notched a fresh closing record just this week. Elsewhere, Nvidia will be under increased scrutiny next week as CEO Jensen Huang takes the stage for the company’s annual artificial intelligence conference. Fed tightening Notably, the March meeting could also bring the first indication that the Fed has begun discussions on tapering its quantitative tightening campaign, meaning the central bank will endeavor to phase out its effort to inject trillions of dollars into the economy, an effort that started during the Covid-19 pandemic. Major Fed speakers such as Dallas Fed President Lorie Logan have telegraphed a tapering is coming before it reduces the central bank’s liquidity. Molly McGown, U.S. rates strategist at TD Securities, said she anticipates a preliminary plan will be announced at the March meeting, enacted in May. “We’re expecting QT to be tapered by 50% until August and then discontinued,” McGown said. “And this will help for less Treasury issuance going forward, so less cheapening pressures on Treasurys moving forward, and we think the market will be reactive to this plan.” Separately, Macro Institute’s Brian Nick said he anticipates concrete details to come in May, with a plan enacted starting in June. Decelerating growth Some market observers anticipate the Fed will have to cut more than it, or markets, are currently anticipating, regardless of what the central bank signals next week. These observers point to softening economic data, as well as the pressure of the Fed’s extensive tightening campaign, which will lead to slower economic growth regardless of whether the central bank manages a soft landing. TD Wealth’s Vaidya anticipates four rate cuts coming in the third and fourth quarters, though he said that outlook will remain data dependent. TD Securities’ McGown expects the Fed will end up cutting five times, even if they signal just three in their dot plot. Meanwhile, Macro Institute’s Nick projects “twice as many, if not more, rate cuts,” saying he expects the “economy is going to be slowing a lot more by the end of this year than the Fed expects.” Nick anticipates a “nasty recession,” resulting in 20% to 35% downside for stocks that won’t bottom until next year. He advised investors stay defensively positioned. Nvidia Next week will also bring Nvidia’s GTC Conference, called “AI Woodstock” by Bank of America , where the AI chipmaker is anticipated to announce its next-generation B100 graphics processing unit that’s supposed to innovate on its flagship H100 chip. The AI powerhouse will once again try to defend its market leadership at a time when more investors are worried about when the rally could be running out of steam. Nvidia has surged more than 70% this year. But Wall Street, anticipating the conference, has only turned more positive on the stock in recent weeks. Bank of America, which lifted its price target on the stock to $1,100 recently, said in a note: “Valuation, ownership levels still suggest room for upside.” Week ahead calendar All times ET. Monday, March 18, 2024 10 a.m. NAHB Housing Market Index Tuesday, March 19, 2024 8:30 a.m. Building Permits SAAR (Preliminary) 8:30 a.m. Housing Starts Wednesday, March 20, 2024 2 p.m. FOMC Meeting 2 p.m. Fed Funds Target Upper Bound Earnings: Micron Technology , General Mills Thursday, March 21, 2024 8:30 a.m. Current Account SA 8:30 a.m. Continuing Jobless Claims SA 8:30 a.m. Initial Claims SA 8:30 a.m. Philadelphia Fed Index SA 9:45 a.m. PMI Composite SA preliminary 9:45 a.m. Markit PMI Manufacturing SA preliminary 9:45 a.m. Markit PMI Services SA (Preliminary) 10 a.m. Existing Home Sales SAAR 10 a.m. Leading Indicators SA M/M Earnings: Nike , FedEx , Darden Restaurants Friday, March 22, 2024 No notable events — CNBC’s Samantha Subin contributed to this report.
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