Wall Street reacted to this week’s Federal Reserve meeting on Thursday, predicting a range of outcomes for the next steps in monetary policy. Economists at most of the largest forecasting firms expect the central bank to cut its benchmark interest rate later this year. But the outlook ranges from one to four downward revisions, and most say only time will truly tell how far the rate-setting Federal Open Market Committee can let its guard down. “The May FOMC meeting was largely calm but generally dovish,” Goldman Sachs economist David Mericle said in a client note. The report underscored the uncertainty following this week’s meeting. “While the committee added a hawkish acknowledgment of the ‘lack of further progress’ on inflation so far this year in its statement, Chairman Powell sent a dovish message at the press conference.” The result of conflicting signals? Goldman Sachs is still calling for two rate cuts this year, each by a quarter of a percentage point, one in July and another in November. However, the firm noted that “even a modest upward surprise” in inflation could hamper that outlook and “further delay a rate cut.” Indeed, there is considerable uncertainty on Wall Street about the magnitude and timing of a rate cut. Traders in the futures market on Thursday continued to price in the possibility of just one rate cut this year and even a 15% chance of a rate hike, according to CME Group. A quick look at the lineup of major companies: Citigroup is an outlier in terms of the number of job cuts it expects to see going forward, although its rationale for future easing isn’t all that different from other companies. Essentially, most economists think the Fed is right that inflation indicators will point to more easing throughout the year and bring the central bank closer to its 2% annual target. The question is how much convincing cautious policymakers need, and how quickly they are willing to act without signaling a wavering in their commitment to stabilizing prices. Citigroup economist Andrew Hollenhorst wrote: “Powell’s comments are consistent with our view that the Fed will immediately cut interest rates as soon as core inflation data weakens or labor market data weakens.” He added He said lower inflation data and a “sharp deterioration” in the employment outlook will lead the Fed to cut interest rates starting in July and continue until the end of the year to reduce the federal funds benchmark by a full percentage point. Ellen Zentner, chief U.S. economist at Morgan Stanley, is all but certain that rate cuts will begin in July, although inflation trends so far in 2024 “have narrowed the path to lower rates.” “Despite the lack of further progress this year on inflation and the labor market, the Committee has made meaningful progress toward its 2 percent goal over the past year,” she wrote. “We continue to see lower inflation, job losses Rising interest rates and three rate cuts this year.” As for more consensus calls, Barclays sees a rate cut “as soon as possible” in September, and if first-quarter inflation data is any indication of what’s to come, the Fed will take a tougher line. . Mark Giannoni, chief U.S. economist at Barclays, noted that while Powell said he was unlikely to raise rates, he also stopped short of repeating his recent expectations for a rate cut at some point this year. “If inflation rises above our baseline, we expect the first rate cut to be delayed until December,” he wrote. “We view this likelihood nearly as likely as our baseline scenario. For 2025, we continue to expect four rate cuts .” The Bank of America said the Fed may remain on hold until more convincing evidence of inflation emerges. “The Fed has shifted to wait-and-see mode and is prepared to keep policy rates at current levels as needed,” said Bank of America economist Michael Garpen. “Taking more time means tapering later.” — CNBC’s Michael Bloom for this article Report contributed.
