Fed to Start Rate Cuts in June; Risk Fewer Delivered this Year

• The U.S. Federal Reserve will cut its key interest rate in June, according to a stronger majority of economists in the latest Reuters poll, as the central bank waits for more data to confirm whether inflation is headed convincingly toward its 2.0% target.
• The survey also showed respondents saw it more likely that if Fed policymakers change their rate projections at the March 19-20 meeting, the median view would signal fewer cuts this year, not more.
• In his latest testimony to Congress, Fed Chair Jerome Powell reiterated policy easing would likely be "appropriate" at some point this year. However, still-sticky inflation and a very resilient labour market could prevent an early rate cut.
• "The Fed is seeking 'greater confidence' in inflation before it starts normalising its policy stance. We expect progress on inflation in coming months will give the Fed enough confidence to begin a gradual cutting cycle in June," said Michael Gapen, chief U.S. economist at Bank of America. "A more forward-looking Fed might put more weight on low inflation expectations and cut sooner, but this Fed is data dependent and wants to avoid backtracking after it starts," he added.
• Despite personal consumption expenditure (PCE) inflation falling to 2.4% in January from its peak of around 7.0% in June 2022, policymakers have said they are waiting for more confidence inflation is moving sustainably to the Fed's 2% target. However, Powell noted, "We're not far from it."
• PCE inflation, the Fed's preferred gauge, was forecast to average 2.2% this year and 2.0% in 2025 and 2026, according to the poll. But other inflation measures - the consumer price index (CPI), core CPI, and core PCE - were still seen above target at least until 2026.

(Source: Reuters