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Apr 12 - 12:55 AM

BNPP: June Fed Rate Cut Now Unlikely; Revising Our Fed Call to Two Cuts in 2024 Instead of Three

By eFXdata  —  Apr 11 - 04:30 PM

Synopsis:

BNNP revises its forecast for the Federal Reserve's monetary policy, now anticipating only two rate cuts in 2024, down from the previously expected three. This adjustment follows the March CPI report, which showcased a third consecutive month of core inflation surpassing expectations, particularly within non-shelter services. The persistence of inflationary pressures, especially in the services sector, suggests a slower pace of disinflation than previously anticipated.

Key Points:

  • March CPI Concerns: The March CPI report's detail, particularly the robust non-shelter services inflation, underscores the challenges facing the Fed in curbing inflation, leading to a reassessment of the likelihood of near-term rate cuts.
  • Inflation Forecast Adjustment: BNPP has increased its core CPI and core PCE inflation forecasts for 2024 to 3.4% and 2.8% (quarter-over-quarter), respectively, indicating a more gradual disinflation path.
  • Revised Fed Call: The bank now expects the Fed to initiate two rate cuts in 2024, specifically in July and December, moving away from its previous prediction of three cuts in June, September, and December.
  • June Rate Cut Unlikely: Given the recent CPI data, BNPP deems a rate cut in June as untenable, expecting the Fed to delay easing until inflation shows clearer signs of moderation.

Conclusion:

BNPP's revision of its Federal Reserve rate cut forecast reflects growing concerns over persistent inflation, particularly within the services sector. The March CPI report's implications suggest a more cautious approach to monetary easing, with only two rate cuts now anticipated in 2024. This adjustment highlights the challenges in achieving a swift return to the Fed's inflation target, underscoring the need for continued vigilance in monitoring inflation dynamics.

Source:
BNP Paribas Research/Market Commentary

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