Source: Jin10 Data
The Federal Reserve is unlikely to overreact to any individual data, including the soft May inflation data.
UBS Group's global research currently predicts that the Fed will start cutting interest rates in December, not September, while Goldman Sachs and Morgan Stanley still expect the Fed to make its first rate cut in September.
On Thursday, Fed officials reduced their expectations for the magnitude of interest rate cuts this year from three 25-basis-point cuts to only one.
Jonathan Pingle, head economist at UBS, said in a report on Wednesday that "the next set of data will need to change a lot of people's thinking before a September cut can be a reality."
JPMorgan still expects the Fed to make its first interest rate cut in November, but thinks there is a greater risk of a cut in September than in December. Bank of America Global Research maintains its prediction that the Fed will cut rates in December.
Gargi Chaudhuri, head of investment strategy, Americas, at BlackRock iShares, believes the signal of a single rate cut in the dot plot has not changed her expectations for the Fed's strategy this year. She believes that if inflation continues to improve, the Fed has already left room for a rate cut in September. The Fed will continue to not overreact to any individual data, including soft May inflation data.
Data released on Wednesday showed that US consumer prices were unexpectedly flat in May, as gasoline prices fell, but inflation remained too high for the Fed to start cutting interest rates before September.
According to the CME Group's FedWatch tool, the market's expectation of a rate cut in September has fallen to 61.5%, down from about 70% after the inflation data was released. The probability of a rate cut in December is currently 93%.
Elias Haddad, senior market strategist at Brown Brothers Harriman, said in a report that he expects the Fed to cut interest rates only once this year, which should temporarily support the dollar, but the prospect of faster rate cuts over the next two years could weaken the dollar in the future.
"Overall, the Fed's guidance is that it plans to maintain higher rates for a longer period of time as other major central banks begin cutting rates, which is favorable for the dollar. Nonetheless, Fed officials want to catch up to the pace of policy easing in the next two years, which could suppress the dollar's strength," he said.
Editor / jayden