By Burhan Sansarlioglu
ISTANBUL (AA) – The US Fed is expected to start its first rate cut in May or June at the earliest, though the bank may need more data, according to experts.
The Federal Open Market Committee (FOMC) will remain on hold on Wednesday, reiterating its commitment to data and its intention to proceed with caution, Philip Marey, the Senior US Strategist at the Dutch financing firm Rabobank, told Anadolu.
Stating that the first interest rate cut will be in June, Marey said that “the focus will be on Powell’s press conference and how much or how little (again) he is going to push back against market expectations of an early rate cut.”
Marey highlighted that, after June, the Fed could continue to cut its rates by 25 basis points every quarter.
He added that the economic activity was resilient after the technical recession in the first half of 2022, with a growth of 3.3% in the last quarter of 2023, and this growth was only moderately affected by the Fed’s rate hike cycle, with personal consumption expenditures performing well in the second half of 2023.
Marey stated that the real policy rates have long been positive and non-restrictive, so there could still be a slowdown in economic growth throughout 2024 and possibly a shallow recession, saying: “However, the economic momentum in 2023 Q4 and downward revision in unemployment data suggests that we may have to shift our forecast for a recession to somewhat later in 2024 than in Q1 and Q2. This also makes it less likely that the FOMC will opt for early rate cuts.”
- 'Policymakers to likely need more months of data in hand before cutting rates'
“Interest rate cuts were not discussed at the December Fed meeting, but it will surely be a hot topic at the January meeting,” said Christopher Rupkey, chief economist at the financial markets researcher FWDBONDS.
Rupkey underlined that the rate of increase in core personal consumption expenditures slowed to 2.9%, and that it will “fall even closer to target in coming months, giving the Fed a chance to cut rates for the first time in May or June of this year.”
“Policymakers will likely need more months of data in hand before cutting rates,” he added.
The Fed may remain on hold at its January conference, Holger Schmieding, Chief Economist at the German private bank Berenberg, told Anadolu.
Despite the hold, the bank may tilt to a first rate cut to “no later than May, (and) if core PCE inflation falls further, the first cut may even come as early as March already,” he said.
“A March interest rate cut looked too soon to us given strong growth and the tight jobs market,” said James Knightly, chief international economist at the Dutch banking firm ING Group.
“The recent Fed official commentary downplaying the chances of an imminent move has not come as a surprise. We believe the Fed will choose to wait until May to make the first move,” he added.
*Writing by Emir Yildirim