The Federal Reserve on Wednesday maintained its key interest rate and indicated that only one rate cut is anticipated before the year's end, down from three in March. Specifically, 11 of 19 participants of the Fed meeting now see no or only one cut as appropriate for 2024.
“Given the logic we laid out in our preview, we are changing our rate call and now only see one 25 bp rate cut as likely this year, at the December FOMC meeting,” UBS economists said in a note.
“There seems to be little information in time to change minds to put September back on the table,” they added. ”In our view, the FOMC has effectively ruled out action until the December FOMC meeting, barring some unexpected and meaningful weakening in the labor market.
Bank of America reiterated its forecast for one cut this year in December “and for a gradual easing cycle that ends with a terminal rate of 3.50-3.75%.
“On the balance sheet, we expect QT to conclude at year-end, though we see a risk that it can extend into 2025,” it added.
Similarly, economists at Macquarie also updated their base case expectations after the FOMC meeting, and now expect the first cut in December 2024, compared to the previous projection of Q1 2024.
“This remains our view. Following this we anticipate a further 50 bps of easing in 1H25,” economists noted.
Meanwhile, Goldman Sachs economists had more dovish comments to share after the FOMC and Powell’s speech.
While the June dot plot surprised markets with a hawkish stance, projecting one rate cut in 2024 instead of the expected two, Powell noted in his press conference that many participants viewed the decision as a close call, leaving both outcomes possible, Goldman noted.
After a soft SPI report, the market-implied probability of a rate cut by September rose from 59% to 85% but fell to 65% post-FOMC meeting.
Against this backdrop, the bank’s economists said they “continue to expect a first rate cut in September and a second cut in December.”