Have expectations for the FOMC swung too far away from rate cuts this year?

The following is (in brief) from Westpac, analysts there see challenges ahead for the US economy that could bring nearer-term rate cuts back to the table:

  • The market response to the March US CPI report suggests participants continue to place a much higher weight on inflation risks over activity. Services inflation is the reason why.
    While many in the market have argued this is due to a strong labour market and high wage growth, increasingly the data does not support this view.
  • Services inflation is no longer being driven by the CPI sub-components tied to discretionary demand. Rather, current services inflation is primarily the legacy of strong goods inflation during the pandemic and capacity constraints.
  • Just as the market became overly optimistic on the prospects for interest rate cuts in late-2023, participants are arguably now under-pricing the support the US economy will need into year end and come 2025

I think there is something to this. And I’ll add in, with the US election coming in November a September rate cut is not out of the question. Yes (I’ve said this before), the Fed is independent, but not THAT independent 🙂

This article was written by Eamonn Sheridan at www.forexlive.com. Source