There is still a lot of uncertainty about the if and when the Federal Reserve will operate the first rate cut of interestwith the market pricing in just one cut after September, some analysts even risking multiple interventions and the Fed itself cooling these expectations, even forecasting a scenario with no intervention by 2024.
FOMC Minutes
The minutes of the latest monetary policy meeting of the Federal Open Market Committee (FOMC) on June 11-12 revealed that there is some division among members of the Board on what to do and, in fact, some members proposed an increase in rates, others a cut and the majority said they were in favour of no intervention on the cost of money.
From the Minutes it emerged that the growth is gradually cooling down and that there is a need for “further information” before thinking about a rate cut. “The vast majority of participants – the minutes read – assessed that the growth of economic activity seems to be gradually cooling and most participants stressed that they consider the current political orientation as restrictive“. For this reason, the FOMC members considered “inappropriate to lower the reference range” rates until “additional information” emerges that provides greater confidence that inflation will return to the 2% target.
Rate expectations
The Fed Minutes and statements released recently by US bankers, not least Chairman Jerome Powell, signal that Only one cut could be made this year of the rates.
The consensus and the marketinstead, provides for at least two 25-pointersthe first in September and the other in autumn, most likely at the November meeting.
ING’s view contradicts Fed and market
Different opinion of the ING analystsaccording to which a combination of weak economic datarecently emerged, and of a Deteriorating labor marketcould convince the Fed to cut interest rates three times in 2024, for a total of 75 basis points of reduction, exceeding both the Fed’s projections and market expectations.
The generalized weakness of theISM Services Indexat a 4-year low, coupled with the upward trend in unemployment benefit claims – experts explain – suggests that there could be a first cut in September and then two more by the end of the year.
According to ING, these data, combined with the slowing inflationstrengthen the reasons for a Initial rate cut in September. “The Fed doesn’t want to trigger a recession if it can avoid it,” ING analysts say, “and if the data convinces them to shift policy to a slightly less restrictive stance, we think bankers will seize that opportunity.”
