Federal Reserve Chairman Powell spoke at a press conference after announcing to keep interest rates unchanged on June 12, 2024 in Washington, USA.
Evelyn Hochstein | Reuters
Morgan Stanley strategists said on Friday that the Federal Reserve and the European Central Bank may take interest rate cuts in September as key data further showed that inflation in the United States and the euro zone is cooling.
Andrew Sheets, managing director and head of cross-asset strategy, told CNBC that the bank is increasingly bullish on the prospect of a double rate cut given recent consumer price index (CPI) and labor market data in the United States and Europe.
“We are more optimistic that the Fed and ECB will cut interest rates in September,” he told “Squawk Box Europe.”
The two central banks showed signs of divergence on monetary policy earlier this month, with the European Central Bank cutting interest rates for the first time in nearly five years and the Federal Reserve insisting that U.S. inflation remains too high to take similar measures.
“It’s understandable that these central banks don’t want to pre-commit. They don’t want to sound too complacent about inflation risks,” Sheets said.
“But we think the data the ECB will see in September is that inflation continues to be benign. I think for the Fed, inflation is continuing to fall,” he added.
The Eurozone inflation rate unexpectedly rose in May, rising 0.2 percentage points from the previous quarter to 2.6%. Volatility is expected due to base effects in energy markets and an easing of government support across the EU.
Meanwhile, U.S. inflation remained stable in May, but rose 3.3% year-on-year (latest data available). consumer price index shown earlier this month. That was an improvement from economists’ expectations for a 0.1% monthly gain.
Markets are currently focused on Friday morning’s release of the core personal consumption expenditures (PCE) price index for May, the Fed’s preferred inflation gauge.
Analysts expect the overall PCE to be unchanged from April, with an annual increase of 2.6%. Excluding volatile food and energy prices, core personal consumption expenditures are expected to rise 0.1% from the previous quarter, which Sheets said was in line with his expectations.
most economists Reuters investigation The Fed is now expected to cut interest rates from the current 5.25% to 5.50% in September this year, with further cuts expected later this year. The European Central Bank also expected Interest rates were cut in September and December.
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