Experts now see the Fed waiting until at least September and are increasingly entertaining the possibility of no cuts at all this year.
Economists and strategists now see the Fed waiting until at least September to cut interest rates and are increasingly entertaining the possibility of no reductions at all this year.
Federal Reserve Chair Jerome Powell speaks during a House Financial Services Committee hearing on the "Federal Reserve's Semi-Annual Monetary Policy Report" on Capitol Hill in Washington, U.S., March 6, 2024.Powell on Tuesday said there's been "a lack of further progress" With most readings putting inflation around 3% and not moving appreciably for several months, the Fed finds itself in a tough slog on the last mile toward its goal.in recent weeks as Wall Street has chased fluctuating Fed rhetoric.
For instance, Bank of America economists said there is a "real risk" that the Fed won't cut until March 2025 "at the earliest," though for now they're still going with a December forecast for the one and only cut this year. Markets at the onset of 2024 had been pricing in at least six quarter-percentage point reductions.
Citigroup, for example, still expects the Fed to begin easing in June or July and to cut rates several times this year. Powell and his fellow policymakers "will be pleasantly surprised" by inflation data in coming months, wrote Citi economist Andrew Hollenhorst, who added that the Fed "is poised to cut rates on either slower year-on-year core inflation or any signs of weakness in activity data.
The possibility of a stubborn Fed raises the possibility of a policy mistake. Despite the resilient economy, higher rates for longer could threaten, not to mention areas of the finance sector such as regional banks that are susceptible to duration risk posed to fixed income portfolios.
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