The recent string of unexpectedly high inflation numbers led Bank of America to push back its forecast for the first rate cut for 2024 from June to December.
BofA’s U.S. economic team wrote in a note Thursday that it does not think policymakers will be confident enough by June to begin easing monetary policy, although they maintain their expectations of four cuts in 2025 and two in 2026.
“The acceleration in inflation this year makes it difficult, in our view, to reduce before December,” write the analysts led by Michael Gapen, citing core CPI inflation in the first quarter, which rose to 4.5% per year compared to 3.3% at the end of 2023. short-term inflation expectations remain high.
“We believe this reasoning also rules out reductions that would begin in July or September. We simply do not see enough progress on inflation and its components between now and then. Additionally, unfavorable base effects mean that “Year-over-year core PCE inflation is unlikely to decline further between the June and September meetings,” the note said.
The bank said that by December, while the one-year core PCE inflation rate is expected to be 2.8%, sequential housing inflation growth rates are expected to show signs of cooling more. convincing and inflation expectations should start stable. down at this point.
“As a result, the Fed may find reason to start easing rates in December. That would mean a rate cut of 1.25 basis points this year, instead of our previous forecast of 75 basis points of rate cuts.” , added the analysts.
A number of banks adjusted their rate forecasts after the March CPI release. Goldman Sachs lowered its outlook from three to two, while RBC said only one was being considered.
On Wednesday, Larry Summers, the former US Treasury Secretary, said there was a growing chance that the Fed’s next rate hike would be a hike after inflation reached a high level for the third month in a row.
businessinsider
