US March CPI data higher than expected, shattering market expectations of a June rate cut by the Federal Reserve. US President Biden stated on the 10th that he still expects to initiate a rate cut before the end of this year, but the latest CPI data may delay the rate cut by one month. Goldman Sachs and Barclays have also revised their expectations for rate cuts by the Federal Reserve this year.
(Previous summary: US March CPI too hot, Fed’s June rate cut expectations shattered, but Bitcoin breaks through 71,000 in reverse)
(Background supplement: Three times no rate cut? Wall Street, Federal Reserve officials have different opinions on interest rate expectations)
The US Bureau of Labor Statistics released data last night showing that the Consumer Price Index (CPI) rose 3.5% year-on-year in March, higher than the market’s expected 3.4% and higher than February’s 3.2%, indicating persistent inflation. The market had eagerly anticipated the Federal Reserve to start cutting rates in June, but it has now been dampened.
After the latest CPI data was released, market expectations for a rate cut in June plummeted from 56.1% to 20.6%. The expected number of rate cuts by the Federal Reserve this year also decreased from 3 to 2. The time frame for the financial swap market to fully digest the rate cut was delayed from September to November.
Biden estimates a one-month delay in rate cut timing
The Federal Reserve’s decision on whether to cut rates has a significant impact on the stock market and also affects the upcoming US presidential election in November. On the 10th, President Biden expressed his rare view on the Fed’s monetary policy, emphasizing that he still insists on his rate cut prediction and expects to initiate a rate cut before the end of this year.
He believes that the latest CPI data may delay the rate cut by one month. Although he acknowledges the persistence of high inflation, Biden also defended his economic performance:
However, since the Federal Reserve is an institution independent of the US government, its decision-making is not influenced or controlled by the government. Therefore, Biden also added that he is not clear about the exact plans of the Federal Reserve and does not want to be labeled as interfering (whether it actually does or not is unknown…).
Goldman Sachs, Barclays, and other investment banks adjust rate cut expectations
With persistently high inflation data, Wall Street giant Goldman Sachs has also adjusted its predictions for rate cuts by the Federal Reserve. They estimate that the first rate cut by the Federal Reserve will be in July instead of June. Goldman Sachs predicts that there will only be two rate cuts this year, with the first one in July and the second one in November, both with a magnitude of 1 basis point.
In fact, Goldman Sachs has made multiple adjustments to its rate cut expectations this year:
In January, Goldman Sachs predicted that the Federal Reserve would start cutting rates in March and there would be a total of 5 rate cuts this year.
After the FOMC meeting in early February, Goldman Sachs postponed the timing of the first rate cut by the Federal Reserve to May and still predicted 5 rate cuts this year.
By late February, Goldman Sachs no longer expected a rate cut by the Federal Reserve in May and predicted 4 rate cuts this year.
In March, Goldman Sachs believed that the Federal Reserve would cut rates in June, and a rate cut in May seemed to be off the table. They predicted 3 rate cuts this year instead of 4.
Now, Goldman Sachs once again admits to a judgment error and changes its prediction.
Barclays also adjusted its rate cut expectations on the 10th, believing that the Federal Reserve will only cut rates once this year, with a magnitude of 1 basis point:
Barclays currently predicts that the federal funds rate target range will be 5.00%-5.25% by the end of 2024 and 4.00%-4.25% by the end of 2025.
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