top of page

Federal Reserve Maintains Cautious Stance on Rate Cuts Amid Strong Economic Indicators

The U.S. Federal Reserve is firmly resolved to avoid premature reductions in interest rates, with some analysts now ruling out a decrease in the summer following the latest economic data.


The recent employment figures underscored the robust health of the U.S. job market, reinforcing the need for the Federal Reserve to proceed with caution. The forthcoming consumer price index report on Wednesday is highly anticipated, especially after February's inflation rate was reported at 3.2%, slightly exceeding forecasts.


This situation has led to a consensus among several market observers, including Minneapolis Fed President Neel Kashkari, who last week hinted at the likelihood of maintaining current rate levels throughout the year, contingent on stable inflation rates.


Mazars' Chief Economist, George Lagarias, recently expressed doubts about any imminent rate reductions this summer. He highlighted the underlying strength of the U.S. economy, attributing it to substantial debt and credit card usage, but nevertheless strong. This, he believes, makes it challenging for the Federal Reserve to justify a rate cut in the near term.


Market forecasts now show a diminished expectation of a rate cut in June and July, with probabilities dipping below 50% according to the CME FedWatch tool, a stark contrast to earlier predictions at the month's start.


Lagarias also reflected on the Federal Reserve's cautious approach since 2021, emphasizing the importance of not repeating past mistakes. Despite the cautious stance, he believes rate reductions later this year are still quite plausible.


The debate continues over the possibility of no rate adjustments in 2023, with opinions divided among economists. While some, like Torsten Slok of Apollo Global Management and Vanguard, anticipate no changes due to the economy's persistent growth, others, including former Federal Reserve Vice Chairman Roger Ferguson, assign a minimal chance to this scenario.


Conversely, some experts still support the Federal Reserve's March indication of planning three quarter-percentage point cuts this year, citing economic forecasts and previous statements from Federal Reserve officials.


Goldman Sachs’ Chief Economist Jan Hatzius remains optimistic about potential rate cuts within the year, contingent on forthcoming economic data and Federal Reserve reactions, aligning with the institution's earlier communications.


Commenti


bottom of page