US Markets
Monday, April 8th, 2024 2:04 pm EDT
Key Points
- Fed’s Caution on Rate Reductions: The U.S. Federal Reserve is adopting a cautious approach towards reducing interest rates, with recent economic data suggesting that a summer rate cut is unlikely. The strength of the U.S. labor market, as indicated by Friday’s jobs report, reinforces the Fed’s determination not to reduce rates prematurely. Attention is now focused on Wednesday’s consumer price index release following February’s slightly higher-than-expected annual inflation rate of 3.2%.
- Growing Uncertainty and Market Response: Despite expectations of rate cuts earlier in the year, there’s a growing possibility among market participants that no rate reductions will occur in 2024. This sentiment is reflected in market pricing, with the probability of a rate cut for both June and July falling below 50%, significantly lower than earlier estimates. Economists like George Lagarias suggest that rate cuts in the summer are now less likely due to the underlying strength of the economy, albeit supported by debt.
- Differing Views Among Economists: Economists remain divided on the likelihood of rate cuts this year. While some, like Torsten Slok of Apollo Global Management and top U.S. asset manager Vanguard, do not expect any rate reductions given the robustness of the U.S. economy, others anticipate rate cuts based on the Fed’s signaling in March. Analysts like Goldman Sachs Chief Economist Jan Hatzius expect rate cuts, albeit with timing contingent on near-term data and the Fed’s reaction function. Former Federal Reserve Vice Chairman Roger Ferguson suggests a 10%-15% chance of no rate cuts this year, emphasizing the uncertainty surrounding future monetary policy decisions.
The U.S. Federal Reserve’s stance on interest rates remains firm, with recent economic data suggesting that a summer rate cut is increasingly unlikely. The latest jobs report emphasized the continued strength of the U.S. labor market, further reinforcing the Fed’s cautious approach. Market observers are now closely monitoring Wednesday’s consumer price index release, following February’s slightly higher-than-expected annual inflation rate of 3.2%. Despite growing speculation among market participants about the possibility of no rate cuts this year, some economists, including Minneapolis Fed President Neel Kashkari, have suggested that no reductions could occur if inflation remains stable. George Lagarias, chief economist at Mazars, echoed this sentiment, indicating that rate cuts in the summer are now less probable, with a potential shift towards the end of the year. Lagarias highlighted the underlying strength of the economy, albeit supported by debt, making it challenging for the Fed to justify immediate rate cuts. Market pricing reflects this uncertainty, with the probability of rate cuts for June and July falling below 50%, significantly lower than earlier in the month. Lagarias noted the Fed’s cautious approach, stemming from a desire to avoid repeating past errors, particularly regarding inflation forecasts. Despite the uncertainty, Lagarias believes rate cuts are still likely this year, contingent on further favorable economic data. However, speculation persists among economists, with differing opinions on the likelihood of rate cuts. While some, like Torsten Slok of Apollo Global Management, anticipate no cuts given the robust economy, others, such as Goldman Sachs’ Jan Hatzius, expect rate cuts based on the Fed’s guidance and prevailing economic indicators. Former Federal Reserve Vice Chairman Roger Ferguson estimates a 10%-15% chance of no cuts this year, underscoring the uncertainty surrounding future monetary policy decisions. Overall, while the possibility of no rate reductions gains traction, the ultimate outcome hinges on evolving economic conditions and the Fed’s reaction to them.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/04/08/they-cant-get-it-wrong-again-will-the-fed-cut-rates-this-year.html
