The Fed will keep interest rates unchanged at the next meeting in June. With starting to cut interest rates early next year
On the other hand, the markets continue to price in 3 rate cuts of 25 basis points for 2023, and a total of 160 basis points cuts until the end of 2024.
I think the danger to the policy path is still there in the near term. This is because inflation is more than twice the Fed’s target rate and the unemployment rate is lower than each FOMC participant’s estimate of the natural rate.”
“These facts alone suggest that the Fed’s bias will be to keep rates high rather than cut. But things could change quickly if there is a major recession, but the recent data stream suggests a more moderate slowdown. In our view, rather than leaning on a moderate recession The Fed will view it as an acceptable rate to bring inflation back to target.”
On the data front, recent releases show that the labor market is getting weaker while inflation continues to decline as well
“While there are reasons for encouragement, inflation is declining only gradually. Furthermore, we still expect that labor market rebalancing will be needed to bring inflation back to the Fed’s target of 2% on an ongoing basis. Therefore, it is not time to take Victory Tour
