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Major brokerages retain US rate-cut view after soft inflation data

Published 05/16/2024, 08:22 AM
Updated 05/16/2024, 08:28 AM
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(Reuters) - Top global brokerages have retained their expectations for when the U.S. Federal Reserve will lower interest rates this year, after softer-than-expected inflation data boosted hopes of a soft landing for the economy.

J.P. Morgan and Goldman Sachs expect the Fed to start cutting rates as soon as July, while Morgan Stanley, UBS Wealth Management, Bank of America, and Deutsche Bank see rate cuts coming in September or December.

WHY IT'S IMPORTANT

Expectations of interest rate cuts this year have boosted demand for equities, after a downbeat 2023 when steep borrowing costs dented the valuation of companies and forced consumers to rein in spending.

The April inflation readings renewed confidence in rate cuts, with most brokerages keeping their forecasts unchanged as they await more data. This is in contrast to March, when hot inflation numbers had nudged them to push their outlooks for the year's first rate cut as far as December, while some even suggested no cuts.

CONTEXT

The U.S. consumer prices index (CPI) increased less than expected in April, data showed on Wednesday, potentially encouraging policymakers who were waiting to see renewed progress on inflation before reducing borrowing costs.

Market participants are pricing in a roughly 72% chance that the Fed will cut rates in September, according to CME's FedWatch tool.

KEY QUOTES

© Reuters. FILE PHOTO: Storm clouds gather over the U.S. Federal Reserve Building before an evening thunderstorm in Washington June 9, 2006. REUTERS/Jim Bourg/File Photo

"April Consumer Price index took a step in the right direction after an alarming 1Q... However, one report is unlikely to inspire a significant amount of confidence for the Fed," BofA Global Research economists said in a note.

"While it is still hard to get any good service (level inflation improvement) around here these days, some stabilization is encouraging and can reinforce the Fed's desire to still make rate cuts this year and keep two cuts still on the table for 2024," said Rick Rieder, BlackRock (NYSE:BLK)'s chief investment officer of Global Fixed Income.

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