According to economists at Commerzbank, the US Federal Reserve is edging closer to a potential interest rate cut. There’s still a strong possibility of an initial move at the June meeting, contingent upon forthcoming inflation data demonstrating improvement.
Fed wants to gain more certainty that inflation has really been beaten
As the Federal Reserve continues its trajectory towards lowering interest rates, it still requires greater assurance regarding long-term inflation reaching the 2% mark. Given the recent unexpectedly high inflation data, it’s improbable that such confidence will be achieved by its upcoming May 1 meeting. Consequently, the earliest likelihood for an initial rate cut remains the June meeting, where a 25 basis point reduction is anticipated, mirroring previous moves.
However, should the subsequent inflation report prove to be persistently disappointing, the Fed may opt to delay its actions further. Regardless, our outlook suggests a relatively constrained scope for rate cuts, totaling 125 basis points at most. This would bring the upper bound of the target range to 4.25% by spring 2025. This forecast is underpinned by the anticipation that inflation will persistently hover above the target in the long term, propelled by factors such as the tight labor market and structural elements like demographic shifts and escalating protectionism.
