Wall Street big banks are starting to be less pessimistic? Deutsche Bank, Bank of America: The Fed will not cut interest rates until December
Wall Street's major banks have different opinions on the Fed's interest rate cut expectations. Goldman Sachs expects the Fed to cut interest rates twice this year, while Barclays Bank expects only one rate cut. Bank of America and Deutsche Bank both believe that the Fed will only cut rates once in December this year. Deutsche Bank also points out that if inflation data disappoints or election results lead to fiscal policies that exacerbate inflation, the Fed will not cut rates this year or in 2025
With the release of the US inflation data for March, the entire Wall Street is reevaluating the Federal Reserve's policy path.
Traders are now expecting the Fed to cut interest rates only after the end of summer. Goldman Sachs has revised its rate cut forecast from one cut to five, then back to two cuts. Barclays Bank has now returned to the position of predicting only one rate cut by the Fed this year. Bank of America has pushed back the Fed's first rate cut from June to December.
In addition, economists at Deutsche Bank have also joined the camp of "lowering expectations for Fed rate cuts."
The Deutsche Bank US economic team, led by Matthew Luzzetti, currently predicts that the Fed will only cut rates once in December this year. This forecast is significantly lower than the previous prediction. Earlier this month, the bank had forecasted four rate cuts by the Fed this year, each cut being 25 basis points.
The team explained the reasons for lowering the forecast: "Given recent macroeconomic data in the US, including rising inflation, strong job market performance, and easing financial conditions, it shows that the overall state of the US economy is more resilient than previously expected. These factors together reduce the likelihood of the Fed cutting rates in the short term."
"The Deutsche Bank team also expects the Fed to cut rates twice in the first half of 2025, followed by a pause in rate cuts until 2026. They emphasize that the actual number of rate cuts may be fewer than predicted, especially considering the uncertainty brought by the US presidential election. If more disappointing inflation data emerges in the future, or if election results introduce fiscal policies that could exacerbate inflation (such as trade or immigration policies), then the Fed will not cut rates this year or in 2025."
Deutsche Bank had previously pointed out that before considering easing monetary policy, the Fed needs to see key inflation indicators - a decline in the core Personal Consumption Expenditures (PCE) price index. However, the bank now expects the month-on-month growth rates of this index in March and April to remain at 0.3%, which could heighten market concerns about future inflation. Therefore, the bank believes that if inflation data predictions materialize, "based on inflation data, the likelihood of the Fed cutting rates at the July meeting is slim."
"Furthermore, other experts are pouring cold water on the prospect of a rate cut in June."
US economist Michael Gapen stated in a report released on Thursday that if inflation unexpectedly rises, the Fed's rate cut could be postponed until 2025.
Bill Adams, Chief Economist at PNC Bank, believes that the Fed may wait until the third quarter to start cutting rates.
David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, said, "The door for a rate cut in June has been closed, it's over."
Morgan Stanley economist Ellen Zentner said, "The sharp rise in core CPI and the evidence needed for the Fed to start cutting rates in June are further apart."
Former US Treasury Secretary and "inflation hawk" Summers said, "We don't need a rate cut now, but we must seriously consider the possibility of the Fed raising rates next, which is probably between 15% and 25%." ”