Two dates pointed out for the Fed's first interest rate cut

Rabobank Senior US Strategist Philip Marey, in his assessment to an AA reporter, stated that the US Federal Reserve's (Fed) first interest rate cut could occur as early as May or June. 

Marey stated that the Federal Open Market Committee (FOMC) will remain on hold tomorrow and will reiterate its commitment to data and its intention to proceed cautiously.

''The focus will be on how much Powell will push back against the market's expectations for an early rate cut during his press conference,'' Marey assessed, expressing that the first rate cut could take place in June.

Marey conveyed that after June, the Fed could continue with a 25 basis point cut each quarter.

Stating that the strong growth figure of 3.3 percent for the last quarter of 2023 shows that economic activity is resilient following the technical recession in the first half of 2022 and has been only moderately affected by the Fed's interest rate hike cycle, Marey said that personal consumption expenditures performed robustly in the second half of 2023.

Noting that real policy rates have been positive and restrictive for a long time, Marey recorded that a slowdown in economic growth and likely a shallow recession could still occur throughout 2024, adding, "However, the economic momentum in the fourth quarter of 2023 and the downward revision in unemployment data suggest that we may need to push our recession forecast a bit further than the first and second quarters of 2024. This also reduces the likelihood of the FOMC opting for an early rate cut'' he said.

FWD Bonds Chief Economist Chris Rupkey also stated that interest rate cuts were not discussed at the December Fed meeting, but that it would certainly be a hot topic at the January meeting.

Reminding that the pace of increase in core personal consumption expenditures has slowed to 2.9 percent, Rupkey said, ''Core personal consumption expenditures will get closer to the target in the coming months and give the Fed a chance for its first interest rate cut in May or June of this year'' he said.

MORE DATA MAY BE NEEDED

Rupkey said that policymakers would likely need more data before cutting interest rates.

Berenberg Chief Economist Holger Schmieding, on the other hand, predicted that the Fed would remain on hold at its January meeting. Stating that the first interest rate cut could be in May at the latest, Schmieding noted that if core personal consumption expenditures fall further, the first interest rate cut could take place in March.

ING International Chief Economist James Knightley noted that given the strong growth and the tightness of the labor market, March might be too early for an interest rate cut.

For this reason, stating that the recent comments by Fed officials downplaying the possibility of an interest rate cut in the near term were not a surprise, Knightley conveyed that the Fed could wait until May.

News Source: 12punto