Macro strategist warns: The Federal Reserve should not cut interest rates this year at all!
Macro strategist warns that the Federal Reserve should not cut interest rates this year. BNP Paribas believes that a rate cut is unnecessary as the economy is still operating normally and is expected to rebound in the second half of the year. However, most analysts and investors expect the Fed to implement some degree of easing policy. They support this view due to encouraging declines in inflation and a cooling labor market. UBS analysts expect the Fed to cut rates at the September meeting. BNP Paribas believes that U.S. economic data will not maintain the current trend, and interest rates will remain high. They think that cutting rates in this environment is inappropriate. Jiaxin Wealth Management believes that the economic slowdown heralds a more severe recession on the horizon
Jim Bianco, President and Macro Strategist of Bianco Research, stated that as the US economy prepares to reaccelerate, the Federal Reserve is risking cutting rates too early.
Last Friday, Bianco said, "I don't see any reason for the Fed to cut rates because it's not necessary, the economy is still running normally." He added, "I expect a rebound in the economy in the second half of the year."
His forecast contradicts the views of most on Wall Street. Most analysts and investors expect some degree of easing by the Fed later this year. This view is supported by encouraging declines in inflation and a cooling labor market. In June, the Consumer Price Index fell to 3.3% year-on-year, while the unemployment rate rose to 4.1%.
Federal funds futures indicate that the Fed may cut rates three times by 25 basis points each this year, possibly starting as early as September.
UBS analyst Brian Rose wrote last Sunday, "With softening inflation and labor market, it now appears that the door is wide open for the Fed to start cutting rates. We expect officials to signal at the end of this month's Federal Open Market Committee (FOMC) meeting that they are prepared to cut rates at the September meeting as long as the data continues to trend as it has recently."
However, Bianco's concern lies in the fact that US economic data may not sustain its current trend. With government spending at high levels and consumer spending remaining strong, interest rates will continue to be high.
He mentioned that the Fed's neutral rate is around 4%, and cutting rates in this environment is inappropriate.
Bianco said, "If the Fed cuts rates twice this year, by the end of the year, rates will actually reach the neutral level. Considering the strength of the US economy, I think this is unreasonable."
Of course, some on Wall Street hold opposite concerns. Charles Schwab pointed out that a slowing economy signals a more severe recession on the horizon, rather than the economic rebound Bianco expects.
Previously, Charles Schwab highlighted worrying signs in the labor market, such as the decrease in non-farm payrolls and the weakness in the ISM Services Purchasing Managers' Index. While this does not immediately signal a recession, significant cracks could damage economic growth