Investors are growing more apprehensive that the Federal Reserve may reduce the amount of interest rate cuts this year as a result of recent strong economic statistics and erratic remarks from certain members.Â
Unemployment Rate Decreased
Traders now believe that one or two rate cuts in 2024 are more likely than the Fed members’ median forecast of three rate cuts at their most recent meeting in March.
Additionally, traders have been lowering their now approximately 58% chance of a first cut in June. The worries stem from a robust labour report.
According to data released on Friday, the US economy created more jobs in March than anticipated, the unemployment rate decreased, and pay growth was stable, placing the labour market on
Only a few hours later, president of the Dallas Fed Lorie Logan dashed short-term expectations for monetary policy easing.
Fed Governor Michelle Bowman expressed concerns on Friday as well; she even hinted that if inflation trends reverse or stagnate, the Fed may need to hike rates at a later meeting.
But according to her basic predictions, the Fed will continue to cut rates this year. According to Conference Board senior economist Dana Peterson, the Fed “has a tough few months ahead of them in terms of feeling confident about beginning interest rate cuts,” she stated on Yahoo Finance Live.
He also stressed, for the second time in a week, that despite some hotter-than-expected inflation readings at the beginning of the year, the overall economic outlook remained mostly unchanged.
Further reassurance was provided by remarks made by Mary Daly of the San Francisco Fed and Loretta Mester of the Cleveland Fed, who maintained their forecast of three cuts in 2024, which was in line with a previous estimate by Chicago Fed President Austan Goolsbee.
Inflation On Peak
Only one rate decrease is expected in the fourth quarter, according to Atlanta Fed President Raphael Bostic, and Minneapolis Fed President Neel Kashkari hinted that the Fed might not even lower rates “if we continue to see inflation moving sideways.”
After some hotter-than-expected data in January and February, Dallas Fed President Logan provided further grounds for investor angst on Friday, stating that she sees “meaningful risks to continued progress” on inflation and is “increasingly concerned about upside risk to the inflation outlook.”
The main concern, according to her, is that “inflation will stall out and fail to follow the forecast path all the way back to 2% in a timely way.”
The Fed governor, Bowman, saw upside risks to inflation in housing services due to the low housing inventory and the possibility that a robust labour market would increase service demand.
Thomas Barkin, the president of the Richmond Fed, stated on Thursday that the central bank should proceed cautiously and seek greater clarity.
