Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious OutperformanceFind Stocks Now

The risk is Fed will deliver more rate cuts this year, not fewer - Citi

Published 03/04/2024, 01:08 am
Updated 03/04/2024, 01:08 am
© Reuters

The potential for further rate cuts by the Fed has become a topic of intense discussion, with many beginning to believe there will be less rate cuts than initially anticipated. However, Citi analysts said in a recent note that they see the risk as balanced toward more rate cuts this year, not fewer.

Market thinks Fed won’t cut in June

The market's anticipation of the Federal Reserve's decision regarding a potential rate cut in June reflects a delicate balance.

Reports in mid-March stated that after a second straight month of stronger-than-expected inflation, the Federal Reserve lowering interest rates in June looks increasingly unlikely.

BMO Capital’s Chief Economist wrote in a recent note that the initial inflation report for February was “an ugly read that will do nothing to soothe nerves on the FOMC.”

“Inflation remains the number one problem they still have yet to solve,” he added. “Clearly, restrictive monetary policy has not yet fully done its work and a patient and slightly hawkish Fed must remain in place for the monetary medicine to fully take effect.”

The move in treasuries on Monday has also fueled some concerns regarding the potential for the Fed to remain steady in June.

Citi sees more rate cuts

In its note, Citi analysts said that markets are pricing less than 50% probability that the Fed will cut in June.

“But we see risks as balanced toward more rate cuts this year, not fewer,” they stated. “0.26% core PCE and Chair Powell’s comments suggesting the Fed is on-track for cuts are more important than ISM manufacturing barely above 50.0.”

3rd party Ad. Not an offer or recommendation by See disclosure here or remove ads .

“The June FOMC had been close to fully priced for a rate cut after Chair Powell’s press conference and Fed projections indicated officials plan to cut rates 75bp this year despite core inflation ending the year above 2.5%,” added the bank. “But yesterday a mysterious sell-off in Treasuries began earlier in the morning and then continued after ISM manufacturing registered 50.3, its first above-50 reading since 2022.”

Citi feels that labor market data will be much more important for Fed policy than which side of 50 the manufacturing diffusion indices sit on. In addition, they see “mainly dovish risk” in this week’s data, projecting a below-consensus 150,000 new jobs on Friday.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.