Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Goldman Sachs, Bank of America push out rate cut expectations after Powell's comments

Published 02/01/2024, 07:12 PM
© Reuters

Investors had been looking forward to a possible reduction in interest rates or the start of a series of rate cuts at the upcoming FOMC meeting in March.

However, Federal Reserve Chair Jerome Powell cast doubt on this expectation in his Wednesday afternoon remarks.

He tempered anticipations for prompt and significant rate cuts beginning as early as next month.

“Based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March is the time to do that,” he said.

“But that’s to be seen.” [March is] probably not the most likely case or what we would call the base case,” he added.

Powell also stated that the Fed is keeping its choices open while it evaluates the future direction of interest rates and the appropriate timing for any reductions.

“Of course, if labor, if inflation were to surprise by moving back up, we would have to respond to that and that would be a surprise at this point,” he also noted.

“But I have to tell you that’s why we keep our options open here and why we’re not rushing.”

Powell reaffirmed his previous stance that the Fed needs more evidence of easing inflation before it starts slashing rates.

What Fed economists are saying

Analysts at JPMorgan Asset Management believe the Fed will cut rates in June, September, and December, “provided the economy keeps growing.”

Goldman Sachs economists pushed back their forecast of the first cut from March to May. The investment banking giant still sees Fed cutting rates 5 times in 2024, followed by additional 3 cuts in 2025.

“We expect core PCE inflation to fall at least a couple of tenths below the FOMC’s 2.4% median projection this year, with further declines in 2025,” analysts said in a note.

“We now expect the FOMC to deliver four consecutive cuts at the May, June, July, and September meetings before slowing to a quarterly pace and adding a final cut this year in December.”

Powell’s comments also prompted economists at Bank of America to alter their prior forecast. The bank now sees the first cut taking place in June.

“Based on the outcome of the January FOMC meeting, we now look for the rate cut cycle to begin in June and expect 25bp rate cuts in June, September, and December This would mean 75bp of rate cuts this year and we retain our view of 100bp of rate cuts in 2025,” analysts wrote.

Here’s what other brokers have to say about yesterday’s Fed statement and Powell’s commentary.

Macquarie’s David Doyle: “Our baseline case remains that the first cut from the FOMC will occur in June. Risks to this are skewed to an earlier meeting.”

Citi’s Andrew Hollenhorst: “We maintain our base case for a first 25bp rate cut in June but would not be too surprised by a first cut in May.”

Morgan Stanley’s Ellen Zentner: “We continue to expect the first rate cut in June. Powell noted the Fed will begin in-depth discussions on the balance sheet at the March meeting. We expect a slow taper of QT to begin in June, end in 1Q25.”

Deutsche Bank’s Matthew Luzzetti: “While our baseline remains that the first cut will come in June, we see risks skewed towards an earlier reduction in May.”

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.