Maybe no Fed rate cuts in FY24?

A recent CNBC article [link] captured the growing concern that the US Federal Reserve’s first rate cut – the infamous “pivot” – might not happen until “at least September”, and discusses a few analysts (including those from Bank of America) who have said that there is “real risk” that the first cut might not even come until March 2025. All this comes after the Fed’s Chairman, Jerome Powell, said that there’s been a “lack of further progress” on the Fed’s fight against inflation and that it’s going to take even longer than expected to back off the high rates needed to contain the inflationary risk. Analysts in the article point to Mr. Powell’s desire to see sustained evidence of inflation’s demise across consecutive months, with one analyst from Moody’s saying that even if the US saw three straight months of 2% or lower inflation, the earliest the Fed could begin cutting rates would be five months from now in September.

MB bottom-line: The problem that has analysts worried is that most of the data available shows that inflation has been quite “sticky” and that the projections don’t show it going much below 3% for the foreseeable future. While the mantra of the Fed has been “higher for longer” for a very long time, I think the recent uptick in articles like this one are responding to the feeling that it’s actually “higher for even longer than we thought”. The implications of this are way beyond me, but it probably raises the chances that the BSP cuts first considering that our inflationary pain is coming from supply-side issues that are better addressed by the government rather than adjustments to the interest rate. I wonder what the interest rate will look like in 9-12 months?

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