Following Wednesday’s hotter-than-expected CPI data and the FOMC minutes, analysts at investment banks Citi, UBS, and Goldman Sachs have said they don’t see the Federal Reserve cutting rates in June.
Analysts at Citi told investors in a note that the March minutes show Fed officials still need more confidence.
“‘Generally’ Fed officials did not have more confidence after the January and February inflation prints, and today’s strong March CPI print would have not increased that confidence either,” analysts at Citi said. “This makes the case for preemptive cuts more difficult.” The bank also noted that “the vast majority” of Fed officials think it would be appropriate to slow the pace of balance sheet reduction “fairly soon” which is in line with their base case for a May announcement and a June start of the tapering of run-off.
Analysts at UBS said they are removing the June rate cut from its base case for the Fed and now looks for the first cut in September with 50 basis points of cuts by year-end.
“Today, inflation data was higher than expected, with both headline and core CPI rising 0.4% month over month. In our view, this data makes a June rate cut unlikely,” analysts at UBS said. “Today’s CPI data should be particularly troubling for the Fed. They have been saying that it would not be appropriate to cut rates until they gained further confidence that inflation was moving sustainably toward their 2% target.”
Analysts at UBS feel it is no longer clear that inflation is even on a slowing trend, let alone moving toward 2%
Analysts at Goldman Sachs have pushed back their forecast of the first rate cut from June to July, stating they “continue to expect cuts at a quarterly pace after that, which now implies two cuts in 2024 in July and November.”
“The FOMC was already narrowly divided on its three-cut baseline for 2024, and we think the Committee will need to see the string of three firmer inflation prints from January to March balanced by a longer series of softer prints in subsequent months,” analysts at Goldman Sachs wrote.
