Major Banks Adjust Predictions for Fed Interest Rate Reduction


Major Banks Adjust Predictions for Fed Interest Rate Reduction

Based on the recent pronouncements from the Federal Reserve, major banks are revising their predictions on when the Fed will initiate a cut in interest rates. Initially anticipating a move in March, banks have now shifted their expectations to May or later.

Fed Chairman Jerome Powell – Photo: Bloomberg.

Following the latest meeting of the US Federal Reserve (Fed), economists at major banks are reassessing their forecasts in light of Chairman Jerome Powell’s statements. The signal from the Fed has prompted banks to abandon their earlier projections of a rate cut in March and instead anticipate that the move will likely occur in May or beyond.

According to Bloomberg news agency, analysts are adjusting their expectations for the Fed’s monetary policy, shifting the timeline for a rate cut to the second quarter of this year. This adjustment follows the Fed’s indication that it needs “greater confidence” in sustained inflation progress toward the 2% target before considering rate cuts. Powell’s statement that a rate cut at the March 19-20 meeting is unlikely has influenced the updated forecasts.

With crucial US economic data set to be released between now and May, including reports on the job market and inflation, economists are approaching the possibility of a rate cut in May with increased caution. The January jobs report, which showed the addition of 353,000 new jobs, well above expectations, has introduced an element of uncertainty. While the data reflects the stability of the US economy, it also raises concerns about the Fed’s potential to maintain higher interest rates for an extended period.

Bank of America, responding to Powell’s press conference, has revised its forecast, pushing back the expected time of the Fed’s first interest rate cut to June, from the previous estimate of March. The bank suggests that June is a likely timeframe for the Fed to take action.

Goldman Sachs, led by Jan Hatzius, also adjusted its forecast, now predicting the first interest rate cut by the Fed on April 30-May 1, instead of March. Despite the shift in timing, they maintain their expectation that the Fed will lower interest rates by a total of 1.25 percentage points in 2023.

Barclays Bank is aligned with this trend, believing that the Fed will commence rate cuts in May rather than March.

While some banks, including JPMorgan Chase and Deutsche Bank, see confirmation in Powell’s statements of their main scenario, anticipating rate cuts in the second quarter, they acknowledge the possibility that the Fed might act at its April 30-May 1 meeting.

Despite these adjustments, some economists assert that the Fed’s commitment to respond to economic data leaves room for various possibilities, including the potential for a rate cut in March if inflation data continues to show weakness.

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