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The risk is Fed will deliver more rate cuts this year, not fewer - Citi

Published 04/02/2024, 10:06 AM
Updated 04/02/2024, 10:06 AM
© Reuters

The potential for further rate cuts by the Fed has become a topic of intense discussion, with many beginning to believe there will be less rate cuts than initially anticipated. However, Citi analysts said in a recent note that they see the risk as balanced toward more rate cuts this year, not fewer.

Market thinks Fed won’t cut in June

The market's anticipation of the Federal Reserve's decision regarding a potential rate cut in June reflects a delicate balance.

Reports in mid-March stated that after a second straight month of stronger-than-expected inflation, the Federal Reserve lowering interest rates in June looks increasingly unlikely.

BMO Capital’s Chief Economist wrote in a recent note that the initial inflation report for February was “an ugly read that will do nothing to soothe nerves on the FOMC.”

“Inflation remains the number one problem they still have yet to solve,” he added. “Clearly, restrictive monetary policy has not yet fully done its work and a patient and slightly hawkish Fed must remain in place for the monetary medicine to fully take effect.”

The move in treasuries on Monday has also fueled some concerns regarding the potential for the Fed to remain steady in June.

Citi sees more rate cuts

In its note, Citi analysts said that markets are pricing less than 50% probability that the Fed will cut in June.

“But we see risks as balanced toward more rate cuts this year, not fewer,” they stated. “0.26% core PCE and Chair Powell’s comments suggesting the Fed is on-track for cuts are more important than ISM manufacturing barely above 50.0.”

“The June FOMC had been close to fully priced for a rate cut after Chair Powell’s press conference and Fed projections indicated officials plan to cut rates 75bp this year despite core inflation ending the year above 2.5%,” added the bank. “But yesterday a mysterious sell-off in Treasuries began earlier in the morning and then continued after ISM manufacturing registered 50.3, its first above-50 reading since 2022.”

Citi feels that labor market data will be much more important for Fed policy than which side of 50 the manufacturing diffusion indices sit on. In addition, they see “mainly dovish risk” in this week’s data, projecting a below-consensus 150,000 new jobs on Friday.

Latest comments

The only thing that would bring a rate cut is if the stock indexes stay in the red. Red=cuts in rates, Green=no cuts
BMO casually uses the adjective “restrictive” to characterize US monetary policy. But offers no evidence. Rip-roaring stock, oil, copper, gold, etc prices say evidence is needed. Not to mention a bond market that’s been hiking rates since the end of last year. Credible analysis justices, not merely assumes.
xistos pentru accelerarea
Unnamed Citi analysts say.
Yes. No journalistic standards applied to this stenography.
This message brought to you by the company that just announced yesterday a massive round of layoffs.
Commodity prices are starting to rise again and i find it difficult that an analyst for Citi is not factoring this in for a another push of inflation coming down the road.
FED is Biden Admin led. a Repig
Somehow nobody takes in consideration that we might get a black swan event for various reasons. In this case it won't be the Feds choice but obligation to cut rates.
CITI talking up their book! Any FED cut with rising economic Hard Data is going to be for political reasons only! Remember, the FED totally changed their tune from hawkish to dovish in less than 2 weeks last December. If they were data dependent, they shouldn’t have mentioned anything about rate cuts or cutting back QT. Notice that this was also around the time Trump started to overtake Biden in POTUS polls.
Hahaha, there won't be any rate cuts. Food, energy, wages and Healthcare prices exploding higher.
FED doesnt care about you or me! They care more about getting Biden re-elected!
gold up or down
Buy on rumors sell on fact
These guys says anything.
Now that it has been forecasted, it won't happen.
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