Bank of America expects the Federal Reserve not to cut interest rates before next June
Most investors concluded that the world's largest central bank has no intention of cutting interest rates, based on responses to reporters after the Federal Reserve announced its decision to stabilize interest rates yesterday, Wednesday. next March meeting, but Bank of America ruled out the April 30-May 1 meeting, and the first cut is not expected to come before the June meeting.
Bank of America strategists pointed to wording in the FOMC report that showed central bank officials would not expect a rate cut until they had more confidence that inflation would return to its 2% target level.
Powell told a press conference after announcing the decision to stabilize interest rates: “I want to tell you that I don't think the committee will reach a level of confidence by the March meeting, so this meeting is appropriate. Time to lower interest rates.”
Powell's words rattled investors who had priced in the strong pace of cuts this year, with total cuts estimated at about 1.5% by the end of 2024, according to CME's Fed Watch tool. At the end of today's trade, the major indices registered their biggest declines this year.
But, according to Bank of America, investors could still be rewarded with “new and faster” interest rate cuts.
The bank's strategists said in a note: “Based on the results of the Federal Open Market Committee meeting in January, we now see a rate cut cycle beginning in June and expect 25 basis point cuts in June, September and December,” meaning a total of 25 basis points. A reduction not exceeding three-quarters of a percentage point.
Although hopes for an interest rate cut faded in March, investors still expect a strong pace of interest rate cuts by the end of the year. According to futures prices, 72% of them expect the central bank to cut interest rates at least six times by the end of 2024.
“Markets disagree with the gradual pace of interest rate cuts as the Fed begins to ease,” the bank said. “Markets may say the bank has to choose between 'faster and slower' and 'later and faster'.” Bank of America said: “Right now, the final option is being voted on. We acknowledge that the risks to our new baseline are leaning in that direction.”
Experts have warned that a Federal Reserve interest rate cut could be a double-edged sword for the economy, especially if the Federal Reserve cuts interest rates too quickly, which could only prevent or get the US economy into recession. As He Warns, Bond King” formerly Jeff Gundlock.
Fed officials kept their target federal funds rate in the 5.25%-5.5% range this week, the highest rates since 2001. Investors now expect 63% of the Fed to keep interest rates on hold in March, up from just 12%. A month ago.