Futures traders are indicating that there is almost no chance of a rate cut by the Federal Reserve before September, according to data from CME Group. In the past, there were expectations of as many as six interest rate cuts for 2024, with the first possibly occurring in March. However, recent data shows a shift in expectations, with a probability of around 50 percent that the Fed will not start easing monetary policy before November.
Economists at Barclays believe that the Federal Open Market Committee (FOMC) is unlikely to prioritize downside risks to employment over the risk of sustained high inflation. They anticipate that this will keep interest rates on hold for the next few meetings as the FOMC waits for evidence that inflation is moving towards the 2 percent target. Barclays expects the Fed to only make one rate cut this year, most likely in December.
Given the expectation that the Fed will keep interest rates unchanged on Wednesday, analysts will be closely watching chair Powell’s press conference for any indication of when the first rate cut could occur. However, with conflicting data still present, Powell is not expected to make any drastic changes this week. The chief US economist at Oxford Economics, Ryan Sweet, believes that Powell will likely stick to the Fed’s mantra of flexible monetary policy and will respond as appropriate to economic conditions.
The mixed economic data may be a reason for the hesitation on the part of the Federal Reserve to cut rates sooner. Analysts are likely looking for more clarity before making a decision on monetary policy. With uncertainties such as trade tensions and the global economic outlook, the Fed may be taking a cautious approach to ensure that any rate cuts are warranted.
With the possibility of a rate cut in September still uncertain, markets may experience more volatility as investors try to gauge the Fed’s next move. It is crucial for the Fed to carefully assess all economic indicators before making any decisions on interest rates. The Fed’s willingness to wait for more evidence before making a move could indicate a more measured approach to monetary policy in the coming months.
Overall, the sentiment among futures traders and economists suggests that the Fed is likely to hold off on rate cuts for the time being, with a potential cut only coming later in the year. It will be important to monitor economic data and developments in the coming months to see if any changes in monetary policy are necessary. The focus will remain on the Fed’s communication and transparency regarding future rate decisions.
