Investors hoping for a handful of rate cuts this year haven’t seen things go according to plan so far.
The new consensus, as neatly as the folks at CME Group can measure it, is that the first cut will come at the Fed’s September meeting.
Last week furnished more evidence of a frustrating reality: Inflation is sticking around. The Consumer Price Index showed a surprise jump in prices in March, rising 3.5% year over year, sending shockwaves through the stock market.
Now that the dust has settled, investors have once again shifted their expectations. In addition to questions of “when” and “how many” cuts, the “if” question is now being asked as some analysts are saying we won’t get any rate cuts at all.
But there’s another wrinkle here.
We may be entering a reality in which the Fed has an unofficial deadline for any action: July. One reason for that is based on data. The other is all vibes.
On the data-based front, simply put, many of last year’s coolest CPI readings came in the second half of the year. Those data points are currently helping hold down year-over-year inflation — for instance, October’s completely flat growth. And though inflation’s path is uncertain, three months of hotter-than-expected inflation isn’t exactly a welcome trend. Right now, analysts at Deutsche Bank expect 0.3% month-over-month CPI growth in April and May.
The second issue is much thornier but related: As you may have heard, there’s a presidential election this November.
It’s not unprecedented for the Fed to make rate moves in election years — even in the final meeting before Election Day. In September 2004, for instance, the Alan Greenspan-led central bank raised rates by 0.25% as part of a hiking campaign after the economy had recovered from the dot-com bubble recession. In October 2008 — in one emergency meeting and one scheduled — the Ben Bernanke-led Fed cut rates, perhaps for obvious reasons.
The Fed’s mission hasn’t changed over the past 15 to 20 years. American politics have.
Key figures of both political parties are trying to nudge the Fed in different directions. One side is certainly louder than the other.
But a Jerome Powell-chaired Fed is not about to go out of its way to give even a hint of an appearance that it is putting its foot on the scale for either of the candidates.
https://finance.yahoo.com/news/the-feds-deadline-for-rate-cuts-this-year-is-sooner-than-you-think-morning-brief-100054462.html
