ready for a rate cut in 2024

The anticipation is growing next meeting of the Federal Reserve, the central bank of the United States and the most important globally. No change in the cost of money is expected at the meeting on 19-20 March 2024, with rates on fed funds unchanged at 5.25-5.50%, but important indications will come from the Summary of Economic Projections (the so-called Dot plot, i.e. the document that summarizes the growth, inflation and interest rate projections of Fed officials) and of President Jerome Powell’s press conference. Investors are eager to know these indications because the information released after the last meeting highlighted them upside surprises on inflation datain the presence of a cyclical and employment context that is still relatively robust.

Inflation recedes

Inflation data (at least as regards the indicators net of the most volatile components) have been higher than expected in the last two months. Looking at the past month, it is true that the main consumer staples (such as product prices
food) decreased, contributing to downward pressure on the overall index, but the thorns in the Fed’s side continue to be represented by core services and real estate pricesalthough both are expected to reduce in the coming months.

“Last week, Fed Chair Jerome Powell’s five-hour speech on Capitol Hill led politicians and market participants to conclude that a rate cut is not that far away,” notes Payden & Rygel’s Economic Team. However, the data suggests it’s not even that close.” “In our opinion, the Policymakers’ confidence in a scenario in which price pressures will continue to decrease is no longer so well-founded“, they added in a report.

Fluid approach

Among the fixed points expected from the next meeting is the fact that the Fed should in any case maintain a “meeting by meeting” approach and dependent on the data, without being obliged to announce a timing that is not even indicative of the moment of the start of the expansionary cycle.

Meanwhile, it basic scenario for the market remains what the first rate cut will come to June. According to the CME’s FedWatch Tool, traders see a 59% probability of a cut of at least 25 basis points in June, but down sharply from 73% a week ago.

According to Intesa Sanpaolo analysts, this scenario requires that “already from March data register one significant moderation in inflation data, in the absence of which even the most dovish members could have difficulty sustaining an early start to an expansionary cycle. In essence, the probability of the risk scenario is growing with a first cut in July/September and only two interventions between now and the end of the year”.