Big banks have pushed back their expectations about when the Fed will start lowering interest rates


Big banks have pushed back their expectations about when the Fed will start lowering interest rates

Based on the latest signal from the Fed, banks have abandoned their final forecasts that the Fed would start lowering interest rates in March, and instead set their expectations for May or later…

Fed Chairman Jerome Powell – Photo: Bloomberg.

After the latest meeting of the US Federal Reserve (Fed), economists of major banks are mulling over what Fed Chairman Jerome Powell said. Based on the signal from the monetary policymaker, banks abandoned their last forecasts that the Fed would start cutting interest rates in March, and instead set their expectations for May or later. more than that.

According to Bloomberg news agency, forecasters are shifting the time they think the Fed will start loosening monetary policy to the second quarter of this year. The shift came after the Fed announced that it needed to achieve “greater confidence” that inflation was falling sustainably toward its 2% target to lower interest rates, and Mr. Powell said that interest rates would be reduced by The meeting on March 19-20 is impossible.

From now until May, there will still be many important US economic data released, including reports on the job market and inflation, so even economists predict that the Fed will start reducing interest rates in May. 6 also appeared more cautious.

This caution is reasonable, because the January jobs report released by the US Department of Labor on February 2 showed that surprises could happen. According to this report, the non-agricultural sector of the world’s largest economy added 353,000 new jobs in January, far exceeding the forecast of 185,000 new jobs given by economic experts in a survey. Dow Jones news agency.

The above data reflects the stability of the US economy, but good news is also bad news, because it strengthens the ability of the Federal Reserve (Fed) to keep interest rates higher for longer. Concerns about high interest rates are reflected in the increase in US Treasury bond yields after the jobs report was released, with the yield on the 10-year term increasing sharply by nearly 0.2 percentage points to 4. 02%.

“When the Fed Chairman essentially rules out a rate cut in March twice in the same interview, we must pay close attention to that signal,” a bank report said. Bank of America commented after Mr. Powell’s press conference Wednesday this week.

With this comment, Bank of America pushed back the forecast time of the Fed’s first interest rate cut to June, from the previous March. The bank’s team of economic experts also proposed the June timeline on the basis that the Fed often makes policy changes at meetings that update quarterly economic forecasts.

But “May is very likely” to be the time when the Fed takes action – the report said. In addition, Bank of America also shifted the forecast time for the Fed to reduce the scale of the quantitative tightening (QT) program from March to May.

At Goldman Sachs bank, a group of economic experts led by Mr. Jan Hatzius also forecast that the Fed will have the first interest rate cut on April 30-May 1, instead of in March as previously forecast. However, they maintain their expectation that the Fed will reduce interest rates by a total of 1.25 percentage points this year.

Similarly, Barclays Bank believes that the Fed will start lowering interest rates in May instead of March.

Traders in the futures interest rate market are also increasing bets on the possibility of the Fed lowering interest rates from May, and believe that the central bank will continue to lower interest rates in June. Fed possibility The interest rate cut in March is reflected in futures interest rate contracts falling to about 1/3, from more than 80% at the beginning of January.

For other banks, like JPMorgan Chase and Deutsche Bank, Mr. Powell’s press conference and the Fed’s statement were a confirmation of their main scenario that the first rate cuts will come in the second quarter. However, these two banks believe that the possibility of the Fed lowering interest rates at its meeting on April 30-May 1 cannot be completely ruled out.

“We maintain our forecast for the Fed to cut interest rates for the first time in June. However, after Mr. Powell’s comments, it is not difficult to see that the configuration of employment and inflation data will likely lead the Fed to interest rate cut in May,” economist Michael Feroli of JPMorgan Chase bank commented in a report.

However, some economists still believe that the Fed’s commitment to act on economic data leaves open any possibility, including the possibility of the Fed cutting interest rates in March.

A group of experts led by Ms. Anna Wong of the economic research department Bloomberg Economics of Bloomberg news agency still maintains its forecast that “continued weakness in inflation data will eventually allow Fed officials to become more and more confident that the When will they be able to reduce interest rates?

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