Investors are likely in for a "hot" summer as it looks increasingly unlikely that the US Federal Reserve (Fed) will cut interest rates.

A series of stronger-than-expected economic data coupled with new comments from policymakers are pointing to no policy easing in the near term. Traders this week have again adjusted futures prices, moving from the possibility of a rate cut in September to only predicting a cut by the end of the year.

The overall reaction was mixed, with stocks suffering their worst day of 2024 on Thursday and the Dow Jones industrial average breaking a five-week winning streak ahead of the Memorial Day holiday.

“The economy may not be cooling as the Fed would like,” said Quincy Krosby, global strategist at LPL Financial. “The market takes each piece of data and translates it the way the Fed sees it. So if the Fed is data-dependent, the market is probably even more data-dependent.”

Over the past week, data have sent a pretty clear message: Economic growth is at least steady if not picking up, while inflation remains present as both consumers and policymakers warn. aware of the high cost of living.

Examples include weekly unemployment claims, which several weeks ago reached their highest level since late August 2023 but have fallen back to a trend that suggests companies have not yet increased the pace of layoffs. That was followed by a survey released Thursday that showed stronger-than-expected expansion in both the services and manufacturing sectors, and purchasing managers reported stronger inflation.

There's no reason to cut back

Both of these data points come a day after the release of minutes from the latest Federal Open Market Committee (FOMC) meeting showed that regulators still lack confidence to cut and a few even let know they may be willing to increase if inflation worsens.

Additionally, Fed Governor Christopher Waller said earlier this week that he needs to see months of data showing inflation is falling before agreeing to lower interest rates.

Taken together, there are not many reasons for the Fed to loosen policy here.

“Recent Fed comments and the May FOMC minutes make clear that rising inflation surprises this year, coupled with strong activity, will likely rule out rate cuts at this time. hey,” Bank of America economist Michael Gapen said in a note. “There also appears to be a strong consensus that policy is in a constrained zone, and therefore rate hikes are probably unnecessary.”

Some members at the most recent FOMC meeting, which ended May 1, even wondered whether “high interest rates might have a smaller impact than in the past,” the minutes said.

BofA thinks the Fed could wait until December to start cutting, although Gapen noted a number of unknown factors could weigh on the combination of a potentially soft labor market and falling inflation.

Upcoming data

Economists like Gapen and others on Wall Street will be watching closely next Friday when the Commerce Department releases its monthly report on personal income and spending, which will also include a price index. personal consumption expenditure, the inflation index on which the Fed focuses most.

The unofficial consensus is for a 0.2% to 0.3% monthly increase, but even this relatively mild increase may not be enough to give the Fed the confidence to cut. At that level, annual inflation is likely to be stuck just below 3%, still above the Fed's 2% target.

“If our forecast is correct, the annual inflation rate will fall just a few basis points to 2.75%,” Gapen said. “There are few signs of progress toward the Fed's goals.”

The market agrees, albeit reluctantly.

Where traders at the start of the year had expected at least six cuts, prices by Friday afternoon had moved to a roughly 60% chance that there would be just one cut, according to CME Group's FedWatch Tool. Goldman Sachs pulled back the first cut expected in September, although the firm still predicts two cuts this year.

The central bank's federal funds rate has stood at 5.25% to 5.50% since last July.

“We continue to see rate cuts as optional, which reduces the urgency,” Goldman economist David Mericle said in a note. “While Fed leadership appears to share our relaxed view on the inflation outlook and is likely ready to cut before too long, some FOMC members still appear to be more concerned about inflation and more hesitant to cut back.”

Source: https://tapchibitcoin.io/fed-co-the-se-khong-cat-giam-lai-suat-nao-trong-mua-he-nay.html