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Recent inflation data has further strengthened the need for monetary policy easing.
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Investors cheered a soft May inflation report that could pave the way for the Federal Reserve to ease interest rates this year.
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One economist said, “The likelihood of an interest rate cut in September is overwhelmingly high.”
Wall Street is feeling much more optimistic about the situation. Interest rate path this year.
Investors cheered on Wednesday. Positive report on consumer price index For May. Consumer prices have been below economists’ expectations for two consecutive months.
The Bureau of Labor Statistics reported that inflation was flat last month, rising 3.3% from a year ago. It’s a data point that could put the Fed back on track to ease policy later this year after releasing a series of disappointing inflation reports in the first quarter. .
Three rate cuts by the end of 2024 are being discussed again, and investors see a 72% chance that the Fed will cut rates three more times by December. CME FedWatch Tool.
Some Wall Street analysts predict the first Fed cut could come as early as July, but most see a rate cut in September as the most likely scenario.
“Wednesday’s lower-than-expected CPI could allow the Fed to begin cutting interest rates as early as September,” said Chief Investment Officer Skyler Waynand. “We have seen several encouraging inflation numbers since inflation surged earlier this year.” “Because it’s done,” he said. said a note from Regan Capital. “There is a clear path to a soft landing and it is very likely that the Fed will rescue the markets within three months.”
“Today’s news appears to open the door to a July rate cut, but given the Fed’s recent hawkish rhetoric, we think that’s highly unlikely,” Preston Caldwell, Morningstar’s chief U.S. economist, said in a statement. “But the likelihood of a rate cut starting in September is now overwhelmingly certain.”
Headline inflation was moderated in part by cooling gas and food prices. According to BLS data, the gas index fell 3.6% in May. Meanwhile, the at-home food index maintained its level after falling 0.2% in April.
“The Fed is increasing the risk of an economic recession by keeping interest rates too high for too long,” Ryan Severino, chief economist at BGO, said Wednesday. “Our modeling suggests the Fed could cut interest rates later this year, but the Fed is not given indefinite time, especially as there is more evidence that the U.S. economy is slowing.”
Investors are waiting for Federal Reserve Chairman Jerome Powell to speak later Wednesday afternoon, which will provide markets with more guidance on the path for interest rate cuts. But Weinand will likely hold off on signaling a rate cut due to higher-than-expected inflation throughout the first quarter, Weinand said.
“Jerome Powell will be in a good mood this afternoon because things are going as the Fed had hoped,” David Russell, head of global markets strategy at TradeStation, said in a note. He said, “The bears have nowhere to run and nowhere to hide.”
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