In the latest financial report, Standard Chartered has projected the Fed's path of interest rate cuts in 2024, with two rate cuts of 25 basis points each. The forecast comes on the heels of higher-than-expected US core consumer price indexes, with Steve Englander, head of global G-10 FX research at Standard Chartered, noting in the report that the high core and supercore data for March increased the likelihood that inflation will prove to be more difficult to curb than the Fed thinks. As a result, Standard Chartered has postponed expectations of the first rate cut and is seeing a growing chance that stubborn inflation will shift the question from "when" to "if".
On the other hand, the Fed hinted at three rate cuts in 2024 at its last interest rate meeting in 2023. This is the first time that Fed officials have predicted that there will be no further rate hikes. Most Fed officials expect the Fed to keep interest rates in a range of 4.5% to 4.75% by the end of 2024, equivalent to three 25 basis point rate cuts at current levels, for a total of 75 basis points.
These projections show that while there is some divergence in the Fed's path of rate cuts, the consensus expectation is that the Fed will take steps to cut rates in 2024 to address the challenges of inflation and economic slowdown.
Before we dive into Standard Chartered's forecasts, let's take a look at the Fed's monetary policy background. Over the past year, the Federal Reserve has raised the federal funds rate to a high level by raising interest rates in a series of measures to curb high inflation. However, as inflationary pressures gradually ease and economic growth slows, the market is starting to expect the Fed to cut interest rates in the future to stimulate the economy.
Steve Englander, Standard Chartered's global head of G10 FX research, has an in-depth analysis and forecast of the Fed's monetary policy. He expects the Fed to cut interest rates in 2024, but the exact number and timing of the cuts are discussed.
In a report, Englander mentioned that while the core PCE price index rose 2.8% year-on-year in January, showing a continued cooling trend in inflation, the figure was not enough for members of the Federal Open Market Committee (FOMC) to prompt them to act at their March meeting. He expects the annual rate of core personal consumption expenditures (PCE) to continue to decline and could fall below 2.5% by June, which will be a key factor in the Fed's rate cuts. In addition, he also mentioned the possibility of a rate cut in May, but overall, a rate cut in June is more likely.
In another report, Standard Chartered predicted that the Fed could cut interest rates in June, a move that could lead to a decline in the US dollar. This forecast is based on an analysis of current economic conditions and inflation data, as well as forecasts of the Fed's policy moves.
However, according to the latest release of the dot plot of Fed officials' expectations for future interest rate levels, policymakers as a whole still expect the bank to cut interest rates three times this year, which is basically in line with the "dot plot" reflected in December last year.
While Standard Chartered's analysis predicts that the Fed will cut interest rates in 2024, it does not explicitly state that there will only be two rate cuts. In fact, according to Fed officials' expectations, there could be three rate cuts this year. It is important to note that these forecasts may be adjusted as economic conditions and the policy environment change. Therefore, market participants should remain attentive and ready for possible changes in the face of specific monetary policy actions by the Fed.