Will Federal Reserve Chair Powell adopt a “hawkish” stance at the upcoming FOMC meeting?

By James Picerno

(English translation of the article was written on March 19, 2024)

Analysts are now debating whether inflation data, which strengthened last week, will be the death blow to the Federal Reserve's June rate cut. One thing is clear. the recent news cycle has not been favorable to expectations of an imminent departure from the Fed's monetary policy.

announced last Thursday exceeded expectations. It exceeded the regional estimate announced before the producer price index. These economic indicators further dampened expectations that the Federal Reserve will soon start cutting interest rates.

There are signs that US economic growth is slowing, but not enough to justify concerns that the Federal Reserve may cut interest rates as the risk of a recession remains low.

Looking at federal funds rate futures as an indicator of market sentiment, the probability that the Federal Reserve will cut rates at its June 12 meeting is 60%, down significantly from 70% two weeks ago.

Fed Funds Futures

While odds of a rate cut at the July FOMC meeting are high at 77%, many analysts are skeptical about the possibility of a rate cut in 2024.

“The Federal Reserve should not fall into the race to cut interest rates,” said Joseph Davis, chief global economist at Vanguard.

Joseph Davis told the New York Times that because the economy has been stronger than expected, tapering too quickly could lead to higher inflation than the Fed wants in 2025. He added: “It is increasingly likely that the Federal Reserve will not cut interest rates at all this year.”

Jim Bianco of Bianco Research agrees with Joseph Davis.

“I'm in the camp that says the Fed is not going to change policy in the summer of an election year,” Jim Bianco told CNBC, adding:

“If the Fed doesn't start the trigger until June, it could be November at the latest, December at the latest, and only if the data warrants it. “But currently the data doesn't support that.”

Recently, the US Treasury market has been leaning toward this view. Specifically, policy sensitivity closed at 4.73% as of March 18, the highest since December.

As doubts grew about expectations of a Federal Reserve rate cut this year, two-year Treasury yields recovered all losses from 2024 onwards.US 2-year Treasury bond rate chart

The Federal Reserve is expected to keep interest rates on hold at the March 20 FOMC meeting, but investors will be watching for the policy announcement, the new economic outlook and any new cues from Chairman Powell.

“The Fed needs more evidence that inflation is on a sustainable path to its 2% target before cutting interest rates,” Ryan Sweet, chief economist at Oxford Economics, said in a research note on Monday. “We will maintain the future guidelines,” he predicted.

Subscribe now!

(For Investing.com users 10% discount coupon)

Warren Buffett, bill gates, What stocks have the world's richest people bought, including Ray Dalio?? Invest Pro Now!+:Check it out here. coupon code “ilovepro12”Get it at a discounted price.

Investing.com & https://kr.investing.com/, unauthorized reproduction and redistribution prohibited

Leave a Comment