Source: Finance Association
① From a sharp interest rate cut to a possible rate hike in 2024, Macquarie changed his forecast; ② Macquarie said that economic flexibility means there will be no possibility of interest rate cuts until 2025; ③ The report said, “The next change may be interest rate hikes, which will trigger a new round of overall strengthening of the US dollar.”
According to reports, economists at Macquarie (Macquarie), one of Australia's largest banks, have made a major shift in their 2024 interest rate predictions.
In December of last year, Macquarie economists David Doyle and Neil Shankar said that the Federal Reserve will drastically cut interest rates by up to 225 basis points in the second half of this year. Assuming that the Federal Reserve cut the federal funds rate by 25 basis points each time, this would be equivalent to cutting interest rates 9 times this year. He can be called the “biggest pigeon” economist at the time.
They believed at the time that interest rate cuts were expected to be driven by a combination of two factors: continued moderate core inflation and rising unemployment.
But just a few months later, the economic situation changed dramatically: inflation showed signs of a rebound, and the US economy, mainly driven by consumers, remained incredibly resilient. As a result, both the Federal Reserve and the market have postponed their interest rate cut schedule for this year. The Federal Reserve previously hinted that its initial forecast of three interest rate cuts this year may be reduced to one rate cut, or even no interest rate cut.
The Macquarie strategist said in a report on Monday that the possibility that the Federal Reserve will cut interest rates this year is very small, almost zero; it is possible to raise interest rates. Potential interest rate hikes will have an impact on the market, as few anticipate this year despite a series of higher-than-expected inflation reports from January to March.
“The latest US data prompted our US economist to postpone his forecast for the start of the Fed's easing cycle until 2025. We also don't rule out that the next change may be an interest rate hike, which will trigger a new round of overall strengthening of the US dollar,” the company said.
The Federal Reserve is expected to take a hawkish tone
The first-quarter GDP growth and personal consumption expenditure (PCE) inflation data released last week showed that inflation is still “sticky,” while steady corporate performance continues to show that most parts of the US economy are on a solid foundation. This means Powell will deliver another hawkish speech at the press conference after the interest rate resolution was announced this week.
“In any case, we expect the Fed's wording after this week's FOMC meeting to adopt a uniform hawkish tone, mainly conveyed through statements,” Macquarie said.
This may be a double blow to the stock market, which mainly focuses on cutting interest rates this year.
“Another increasingly ominous prospect is that the next change in policy interest rates may raise interest rates, even if the Federal Reserve's policy tendencies do not change. Moreover, the threat of interest rate hikes will definitely trigger a new round of overall strengthening of the US dollar,” Macquarie said.
The company also added that for US companies doing business overseas, the appreciation of the US dollar was a negative factor because it reduced their international profits from currency conversion.
editor/tolk