First Fed Rate Cut of 2024 May Occur in July
A recent economist suggests that the U.S. economy faces significant recession risks, making a Fed rate cut likely in July.
While the market expects a longer path to rate cuts, the Fed could make its first reduction in July as recession risks become more apparent.
Steven Blitz, an economist at GlobalData TS Lombard, noted in a June 19 report that there is a 60% chance Fed Chair Jerome Powell might surprise the market with a rate cut next month. According to the CME FedWatch Tool, the market currently predicts only a 10% chance of a rate cut in the July meeting, with most expecting the first reduction in November.
Blitz stated that the rate cut would aim to prevent a recession, given recent data showing economic weakening. As Powell reiterated that the Fed's decisions depend on data, an early rate cut is possible.
Blitz remarked, “Recent economic data suggests that if June’s nonfarm payrolls mirror April and overall June data remains weak, the FOMC will adopt a more dovish stance in July.” In April, the U.S. economy added 175,000 jobs, falling short of analysts' expectations. While May data improved, a rise in unemployment claims cast a shadow over the labor market. Housing data also indicated a significant slowdown in construction activity.
Blitz noted, “The pace of new home construction slowed in May, particularly for single-family homes. Inventory levels rose, and transactions declined, signaling a recession. Weak builder sentiment further lowers expectations for new home construction in the latter half of the year.”
These risks are becoming more evident, especially after hawkish Fed officials like Neel Kashkari suggested rate cuts might not occur until December.
Blitz concluded, “The FOMC shouldn’t pre-announce rate cuts. Economic data will dictate when cuts are necessary.” With recent data showing cracks in the housing and labor markets, a rate cut could happen sooner than expected. Blitz added, “It’s likely the Fed will ease in July. Recession is inevitable.”
Reference: BI
