At the onset of 2024, there was widespread anticipation among analysts that rate cuts were imminent for the year. However, Macquarie, a prominent financial institution, has since made a notable pivot in its outlook, abandoning its previous predictions for rate cuts within the year. Instead, in a recent note issued on Monday, Macquarie declared that it no longer foresees a rate cut in 2024, pushing its projections for the first rate cut to 2025. This strategic shift comes in response to a series of recent economic indicators that have challenged the prevailing narrative of disinflation and sluggish growth.
The catalyst for Macquarie’s revised stance can be traced to the latest data releases, particularly the core personal consumption expenditure figures for March, which revealed a notable month-on-month increase of 0.32%. Furthermore, revisions to economic growth figures for January and February showed upward adjustments, further undermining expectations of a slowdown in inflationary pressures.
Whereas in December there was optimism that year-on-year core inflation would gradually approach the 2.0 to 2.5% range by mid-2024, recent economic data has cast doubt on this trajectory. Macquarie highlighted the unexpected strength in recent economic figures as the primary reason for reassessing the likelihood of rate cuts.
Of particular concern to policymakers at the Federal Reserve is the trend in super core inflation, an inflation measure that excludes housing costs. Macquarie noted a month-on-month increase of 0.39% in this metric, signaling a re-acceleration from previous months and amplifying worries about upside risks to inflation.
As expectations for rate cuts wane, the upcoming two-day meeting of the Federal Open Market Committee (FOMC) garners heightened attention from market participants. While it is widely expected that the Fed will maintain its current interest rate levels at the conclusion of the meeting, investors are eagerly awaiting signals of the central bank’s stance on future monetary policy. Macquarie anticipates that the FOMC’s monetary policy statement and remarks from Fed Chairman Jerome Powell will lean towards a more hawkish tone, reflecting recent economic developments, particularly the robust inflation readings for March.
This shift in Macquarie’s outlook underscores the dynamic nature of monetary policy and the constant recalibration of expectations in response to evolving economic conditions. As the economic landscape continues to evolve, market participants must remain vigilant and adaptable to navigate the shifting currents of monetary policy.