The possibility of an interest rate adjustment following tonight's Federal Reserve meeting is almost zero.

As the Federal Reserve is set to conclude its meeting this Wednesday, all eyes are on the central bank's next move, especially amidst ongoing economic pressures. Inflation remains a focal point of concern. Here's what to expect from the CNBC interview with experts and market observers regarding this crucial meeting.

Update as of 5/2: The Federal Reserve keeps interest rates unchanged, Powell states "next move is unlikely to be a rate hike."

BTC briefly drops below 60K, MicroStrategy plunges 17%! With a lack of speculative topics, is the Bitcoin bull market coming to an end?

Anticipating the Fed to Maintain the Status Quo

The Federal Reserve appears to be in a holding pattern, likely to keep its interest rate policy unchanged this week. According to market forecasts, the likelihood of the Federal Open Market Committee (FOMC) adjusting interest rates is almost zero, with overnight lending rates expected to remain between 5.25% and 5.5%. This unchanged stance may persist in the foreseeable future as the Fed evaluates the inflation outlook and its impact on the economy.

FOMC Members in Agreement

Recent discussions among FOMC members and financial analysts indicate a consensus on the approach to monetary policy in the near term. Guy LeBas of Janney Montgomery Scott noted, "Everyone at the FOMC is pretty much reading from the same script now," suggesting a general agreement to hold off on any policy changes until there is more confidence in the inflation trajectory. The committee may consider lowering rates when economic conditions are more favorable.

Policy Tools and Quantitative Tightening

One significant development expected to be announced at the meeting is an update on the Fed's bond-holding strategy. The central bank may announce a slowdown in the pace of reducing its balance sheet, signaling the end of the quantitative tightening process. This is an effort to manage the money supply without causing unnecessary market turbulence.

Prolonged Period of High Rates Anticipated

Despite market conditions stabilizing following Chairman Powell's recent remarks, the Fed remains cautious. Powell emphasized the need for "greater confidence that inflation will be sustained at 2%" before considering easing policy. With recent data showing inflation rates higher than expected, the possibility of a rate cut in the near term seems increasingly unlikely, indicating a longer period of high rates may ensue.

Economic Indicators Complicate Future Expectations

The economic landscape presents mixed signals. The Personal Consumption Expenditures Price Index continues to show inflation above the Fed's target, making the path to policy easing more complicated. Meanwhile, the Employment Cost Index has exceeded expectations, adding to inflationary pressures. These indicators are crucial for the Fed to navigate its course in uncertain economic waters.

Market Response and Long-term Rates

Futures markets reflect a cautiously optimistic sentiment, with only a 50% probability of a rate cut by September 2024. Analysts, including those at Goldman Sachs, still hold out hope for a rate cut later this year, contingent on favorable inflation reports. However, any unexpected policy shifts or economic disruptions could swiftly alter these forecasts.

Reducing the Balance Sheet

A key focus of the Fed's strategy is managing its massive balance sheet, which has been gradually reduced by controlling the operation of bonds. The meeting may announce news of a slowdown in the pace of reduction, a critical tool in the Fed's monetary tightening efforts. As the Fed's meeting concludes, all stakeholders from Wall Street to Main Street eagerly await any adjustments or shifts in direction that may indicate a change in the economic outlook. In a cautious balancing act, the Fed aims to guide the economy towards stability while controlling inflation.