Fed-Speak: Rate cuts coming [09-09-2024]

Fed-Speak: Rate cuts coming [09-09-2024]

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Fed-Speak: Federal Reserve Bank of New York President John Williams said it is appropriate to slash rates on colling job market and disinflationary trend. He added that it is unlikely that the labour market will be a source of price pressures going forward and timing of rate cut will depend upon incoming data, the evolving outlook and the balance of risks. Fed’s Waller said that he would back front-loaded rate cuts if required. Goolsbee also called for rate cuts.

US yields and the Dollar Index: Yields sink

The US bond market also whipsawed in the wake of the US job report and the Fedspeak as the job report casts doubts on the Fed going for 50 bps cuts at the September FOMC meeting.

The ten-year US yields closed with a loss of 0.66% at 3.72% and were down around 5% on the week. The two-year yields closed 2.50% lower at 3.65% Friday and were down around 7% on a weekly basis. The US Dollar Index closed at 101.19, down 0.14% Friday. The Index was down around 0.50% on the week.

“We had nothing but bad news on the inflation front through the first quarter…all of those inflation increases were too big to allow rate cuts,” said Chris Low, chief economist at FHN Financial, who expects the Fed to cut twice this year, in September and November.

“For the Fed to cut rates, we have to see a change in trend. One month of good news will not be enough to allow a cut, they need several months. There is a pretty significant risk they will do less than two.”

April consumer price index (CPI) numbers are due to be released on Wednesday. U.S. consumer prices are forecast to have increased 0.4% month-on-month in April, the same as in March, a separate Reuters poll predicted. But an upside surprise could lead to a change in expectations toward lesser cuts.

The personal consumption expenditures (PCE) price index, which the Fed targets at 2%, has risen over the past few months, suggesting the bar for a rate cut is still high.

In the latest Reuters poll, economists broadly upgraded their 2024 outlook for inflation – CPI, core CPI, PCE and core PCE – for the second straight month.

None of those measures of inflation were expected to reach 2% until at least 2026.

“We readily acknowledge that it would not take much for the start of the cutting cycle to be pushed back until November. What’s more, the risks to that call are heavily skewed toward there being one cut in 2024 as opposed to three cuts,” noted economists at Wells Fargo.

Around 60% of participants in the latest poll, 65 of 108, predicted two quarter-point cuts this year, up from half of the sample a month ago.

But only 17 now see more than two rate reductions, just half the 34 in April. While 25 saw only one reduction, one said none.

An over-60% majority of economists who replied to an additional question, 26 of 41, said the chances were low or very low the Fed would hold rates for the remainder of the year.

Asked about estimates for the Fed’s neutral rate – one that neither stimulates nor restricts economic activity – the median of 29 responses was 3.00%-3.25%, higher than estimated just a few months ago.

The U.S. economy, which grew at a slower-than-expected 1.6% annualized pace last quarter, was forecast to expand 2.4% this year, faster than what Fed officials currently see as the non-inflationary growth rate of 1.8%.

Sources: Reuters

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Neal Bhai has been involved in the Bullion and Metals markets since 1998 – he has experience in many areas of the market from researching to trading and has worked in Delhi, India. Mobile No. - 9899900589 and 9582247600

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