With rate cuts in the US now a second-half story if they’re still a 2024 story at all, some of the drama’s gone out of the May FOMC decision.

A cut at the June SEP gathering isn’t on the table, which means the Committee won’t be compelled to lay the groundwork this week. Instead, deliberations will revolve around officials’ views on the read-through of recalcitrant inflation and an economy which continues to perform eight months into the Fed’s stay at terminal.

Last week’s undershoot on the GDP headline shouldn’t give anyone on the Fed pause. The underlying aggregates suggested demand and investment were sturdy in Q1. And the following day’s PCE release covering March showed both nominal and real spending held up well for a second month, even as consumers are pretty clearly funding that spending out of savings. Indeed, inflation-adjusted spending was firm in six of the last seven monthly releases. And the labor market’s (more than) fine.

By contrast (and as a consequence of robust spending), the core and “supercore” quarterly SAAR inflation readings were very warm in the GDP release, at 3.7% and 5.1%, respectively. Jerome Powell may be asked to address those prints during the press conference this week.

Even the relatively benign inflation prints that accompanied March’s personal income and spending report were uncomfortable. Core price growth’s still running nearly a full percentage point above target on a 12-month basis and “supercore” prices rose 0.4% last month from February, nowhere near the sub-0.2% monthly readings the Fed needs to cajole the annual pace back to 2% on a sustainable basis.

The risks around the Fed’s mandate are self-evidently more balanced than they were during the height of the inflation scare, but recent readings on core price growth leave little doubt: The bigger danger’s still inflation, not job losses, even as that admittedly feels like “fighting the last war.”

At the November press conference, Powell conceded that the dot plot tends to become “stale” between SEP meetings. At the time, that constituted a dovish lean. To the extent he reiterates the dot plot’s short shelf life on Wednesday, it’ll be a hawkish nod. The March dots aren’t just stale, they’re spoiled. Market pricing reflects fewer than two cuts by year-end versus the dot plot-implied three.

Barring an extraordinary turn in the macro between now and the June FOMC meeting, the next dot plot will see the median 2024 marker shift higher.

“As investors continue to debate whether the Fed will cut twice, once or not at all during 2024, it is unlikely that the takeaway from Wednesday’s policy update will offer definitive guidance,” BMO’s Ian Lyngen and Vail Hartman remarked, adding that “the most investors will receive is confirmation that the FOMC’s reaction function to the realities of the economic data remains intact, as does the Committee’s 2% inflation target.”

Do note: The rationale for so-called “insurance cuts” in 2024 is fading. This is a mechanical process. Or at least it was, past tense. As inflation recedes with terminal static, the real policy rate moves up. That’s passive tightening and it effectively means the Fed would need to “cut to stand still,” so to speak.

But, as the figure above, from BMO, shows, that rationale only holds to the extent inflation does in fact continue to recede. If it doesn’t, or starts to drift up again, the real policy rate ceases to become more restrictive or even becomes incrementally easier. (Note the blue line has leveled off recently.)

“As the broader disinflation progress has begun to stall, the rate at which policy has been tightening has also moderated,” BMO’s Lyngen and Hartman went on. “In other words, the extent to which the FOMC has benefited from passive tightening has declined as inflation progress has slowed, a dynamic that isn’t necessarily encouraging and could even be used to support the case for higher neutral rates.”

The last time traders heard from Powell was on April 16, during an event for the IMF-World Bank meetings in Washington. Recent inflation reports, he said, “indicate that it is likely to take longer than expected” for the Fed to achieve the confidence it needs to cut rates.