While there is little prospect of an imminent policy change, the Federal Reserve thinks it will likely be appropriate to cut rates and move its stance towards a more neutral footing later this year, assuming the data cooperates.
Monetary policy is in restrictive territory and we see scope for the Fed to cut rates by 125bp this year, starting in June. Rates held, but a bias to easing set to remain US growth, jobs and inflation data remain too hot for the Federal Reserve to contemplate imminent interest rate cuts with some commentators still arguing the Fed has more work to do to control inflation.
We think they won’t want to go quite that far given the prospect of ongoing loose fiscal policy irrespective of who wins the November presidential election, but we expect 125bp of cuts this year, starting in June, with a further 100bp in 2025 as hopes rise for a soft landing for the economy. No panic to slow QT expected from the Fed – An intention to plan it is more probable The Fed may or may not opine on the pace of balance sheet reduction.
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