DBS Bank: Pricing in the Fed’s aggressive rate cuts could lead to disappointment and panic

ChainCatcher reported that according to Jinshi, DBS Bank said that the market expects the Federal Reserve to make a series of interest rate cuts, but aggressive market pricing may lead to disappointment and ultimately cause panic.

“Inflation below 3% and policy rates above 5% tend to coexist poorly, so some monetary easing is necessary,” economist Taimur Baig wrote in a note. “But the rate cuts priced in by markets appear to be too large. For the yield curve to price in more than 200 basis points of rate cuts over the next 16 months, the U.S. economy would have to weaken markedly and inflation would have to fall below 2%, which is unlikely.” DBS’ base case is for 150 basis points of Fed rate cuts by the end of 2025, with a 25 basis point cut this week.