Major Banks Adjust Projections for Fed’s Interest Rate Cut Timeline


Major Banks Adjust Projections for Fed’s Interest Rate Cut Timeline

In response to the latest signals from the Federal Reserve (Fed), major banks are revising their forecasts for a potential interest rate cut. The banks have abandoned earlier predictions of a rate cut in March and are now setting their expectations for May or later.

Fed Chairman Jerome Powell – Photo: Bloomberg.

Following the recent meeting of the Federal Reserve, economists are closely analyzing Chairman Jerome Powell’s statements. Based on the signals from the central bank, banks have shifted their forecasts for an interest rate cut to the second quarter of this year. This adjustment comes after the Fed indicated the need for “greater confidence” in sustainable inflation decline towards its 2% target before considering rate cuts. Chairman Powell also emphasized that a rate cut at the March 19-20 meeting is unlikely.

Bloomberg reports that forecasters are now projecting the Fed to start easing monetary policy in the second quarter. The shift in expectations is driven by the Fed’s criteria for inflation confidence and statements ruling out a March rate cut. With significant economic data, including job market and inflation reports, set to be released between now and May, economists are exercising caution in predicting a rate cut in May.

This cautious approach is deemed reasonable, particularly considering the surprising January jobs report released by the US Department of Labor. The report revealed that the non-agricultural sector added 353,000 new jobs, surpassing the forecast of 185,000. While this data reflects economic stability, it also raises concerns about prolonged higher interest rates.

Bank of America, responding to Chairman Powell’s comments, revised its forecast for the Fed’s first interest rate cut to June from the previously predicted March timeline. The bank’s economists also suggested June as the likely time for action, given the Fed’s tendency to make policy changes during meetings that provide quarterly economic forecasts.

Goldman Sachs, Barclays, and other banks are aligning their predictions with a likely interest rate cut in May, moving away from earlier expectations for March. Traders in the futures interest rate market are also adjusting their bets, with increased speculation on a May rate cut and the possibility of continued reductions in June.

While some banks like JPMorgan Chase and Deutsche Bank are holding onto their main scenario of a second-quarter rate cut, they acknowledge that the possibility of a rate cut at the April 30-May 1 meeting cannot be ruled out entirely.

Despite these adjustments, some economists believe that the Fed’s commitment to data-driven decisions leaves open the possibility of a rate cut in March, depending on economic indicators, particularly inflation data.

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