Wall Street assumes that Powell will keep rates at 5.5%, but is confident that there will be up to two cuts before the end of the year.
One or two rate cuts this year in the US? That is the big question that investors and analysts are asking ahead of today’s meeting of the Federal Reserve. The market discounts that the price of money will remain between 5.25% and 5.5%maximum of the last 23 years. It will be the seventh consecutive break, so all eyes will be on the forecast table update managed by the US central bank.
Their latest forecasts pointed to three cuts in 2024. However, inflation has not given a truce and that scenario is now ruled out. The president of the Fed, Jerome Powellhas been very clear in recent weeks: “It is going to take us longer than expected because there has been no progression in the de-escalation of inflation.”
For this meeting, The CPI data for May has not arrived on timewhich will also be known today, so the governors are working with the April statistics, which ended up standing at 3.4%, just one tenth less than the previous month and after several increases in the first quarter.
The stagnation of prices above 3% is what is complicating the Federal Reserve’s roadmap, that unlike the European Central Bank (ECB) -which cut a quarter of a point last week- is determined not to start the de-escalation until we are convinced that inflation is around 2%.
Furthermore, Powell has insisted several times that They need to see, at least, two consecutive falls in the CPI below 3%, something that does not end up happening, thus awakening the fear of some analysts, who even see The Fed is likely to end the year without cutting the price of money even once.
Even so, The majority believes that a cut in 2024 is guaranteed and there is speculation about the possibility of another one. The big doubt is How the calendar will be set after the summer, with September as the main unknown, waiting to know if the macroeconomic data will justify the start of the de-escalation. If not, we will have to wait until December, since If analysts agree on something, it is when predicting that at the November meeting, coinciding with the presidential elections, the Fed will remain neutral so as not to add more pressure to the markets.
Anyway, Powell himself has insisted that he will not be influenced by the electoral calendar and he will do what he considers best for the economy, which is already beginning to show signs of cooling. Unemployment rose last month to 4%, the first time it has reached this level since January 2022, while the GDP for the first quarter stood at 1.6%, far from the 3.4% with which the fourth quarter of last year ended.
However, “monetary policy is still not restrictive enough to slow down economic activity and that is confirmed when observing the financial conditions”, they point out from Jupiter. “In this complex environment, we believe that “The Fed could be unable to cut rates sharply in the coming months.”.
In Generali Investment They are convinced that economic growth will pick up again in the second quarter and that underlying inflation will end the year at 2.7%. Therefore, “the slowness of disinflation and the resistance of the labor market are compatible with two rate cuts this year, in September and December“says Paolo Zangiheri, senior economist at the manager.
In La Française They also lean toward two cuts this year, and they go further, predicting four reductions in 2025 and another three in 2026. Jack Janasiewicz, strategist at Natixis, believes that “the possibility of a cut in September remains, as long as the data cooperates.”
