The eagerly anticipated Federal Open Market Committee (FOMC) meeting scheduled for March 19-20, 2024, has investors on edge as they wait to hear the Federal Reserve's latest policy decisions. While interest rates are expected to remain unchanged at 5.25%-5.50%, all eyes will be on the updated macroeconomic projections and Fed Chair Jerome Powell's remarks during the press conference.

In December, the Fed signaled a preference for three rate cuts in 2024, followed by four more in 2025. Powell has recently hinted at the need to gain greater confidence in assessing the disinflationary trend towards 2% before considering rate cuts, but has indicated a willingness to do so this year.

However, two unexpectedly high inflation reports this week have shifted market expectations for a June rate cut. Market-implied probabilities now show a 60% chance of a cut in June, with traders pricing in a cumulative 79 basis points of rate cuts by year-end, in line with the Fed's earlier indication.

Former St. Louis Fed President James Bullard, once a notable hawk, now argues that delaying rate cuts until the latter half of the year risks keeping interest rates elevated for an extended period. He stressed the need for the Fed to "get going on the rate cuts they have to make" to avoid damaging the economy or falling short of its 2% inflation target.

Bank of America's chief investment strategist, Michael Hartnett, raised concerns about the Fed tolerating higher inflation, which could weaken policy credibility and potentially lead to a weaker currency. This sentiment has contributed to the recent highs seen in Bitcoin and gold prices.

On the other hand, former Kansas City Fed president Thomas Hoenig suggests that the Federal Reserve's monetary policy stance may not be as restrictive as previously thought, given the persistent strength of the economy. Hoenig believes the central bank will proceed cautiously with interest rate cuts, potentially delaying them until the second half of the year.

According to a Bloomberg survey of economists conducted prior to the release of inflation data, most economists expect the Fed to stick to its plan of three interest-rate cuts this year and four in 2025. They anticipate upward revisions in forecasts for U.S. gross domestic product (GDP) to 1.7% in 2024 and an increase in the inflation projection to 2.5%.

However, opinions diverge, with some outliers suggesting that with growth, employment, and inflation currently exceeding comfortable levels, the Fed may not be in a position to contemplate cutting interest rates in the near term. These economists argue that the central bank may exercise more patience with rate cuts than what is currently forecasted.

The outcome of the FOMC meeting and Powell's remarks will shed light on the Fed's approach to inflation and the path for interest rates. Market participants will closely analyze the Fed's projections to gauge whether they maintain their current stance or suggest a revision in the pace of rate cuts.