David McNamara: All eyes on US Fed's new inflation forecasts on Wednesday 

US Federal Reserve chairman Jerome Powell: The Fed will unveil its monetary policy decision on Wednesday.

This week is set to be an important period for markets as three key central banks, the US Federal Bank, the Bank of Japan, and the Bank of England unveil their monetary policy decisions. 

Markets are already digesting the first rate hike by the Bank of Japan since 2007, and, in the process, exiting negative rates for the first time since 2016. 

Speculation had been building in the run-up to the meeting that the Bank of Japan would alter policy following higher-than-anticipated wage agreements in the country. 

However, the the central bank remained cautious about the outlook. 

It indicated it was likely to remain accommodative, and against this backdrop, the yen has edged lower. It fell against the dollar, the euro, as well as against sterling.

Elsewhere, the US Fed releases its latest economic projections on Wednesday for the first time since December. 

The forecasts will include its closely watched scatter-plot chart, or the so-called DotPlot, of interest rate projections. 

Ahead of these decisions, market rate expectations have reacted to higher-than-expected US inflation data. 

The US consumer price index for February surprised on the upside, with core inflation rising 0.4% on the month and by 3.8% on the year, with both numbers above market consensus forecasts. 

US housing costs remained stubbornly high and drove the unexpectedly elevated outturn for consumer price inflation last month. 

However, US housing costs have been volatile in recent months and inflation is expected to moderate in the coming months.  

Then, US producer prices also printed much higher than expected.

The headline producer price index rose 0.6% on the month, well above the consensus rate, largely due to higher energy and transport costs. 

US core producer prices rose 0.4% on the month and accelerated to 2.8% on the year. Annual core producer prices have plateaued in the 2.5% to 3% range over the past few months.

On the back of the releases, Fed Funds futures made significant moves: Markets are now pricing in just 70 basis points of rate cuts by the end of 2024, down from the almost nearly 100 basis points, or 1%, in cuts that were priced in only a couple of weeks ago. 

The dollar has also firmed: The euro dipped below $1.09  following the release of the US producer price data. 

Significantly, inflation expectations as surveyed by the New York Fed rose to a six month high in February.

These developments are likely to give pause to the US Fed members as they update their economic and rate projections at their meetings on Wednesday.

The data will likely embolden the hawks, who seek a longer pause in rates at current levels.

• David McNamara is chief economist at AIB