Banks, economists not hopeful on rate cuts in June

Wall Street seems less hopeful that the Federal Reserve will cut interest rates and dreads a possible rate hike this June as inflation rose to 3.5% in March from the year before and is up from 3.2% in February, per the Consumer Price Index (CPI) report released on Wednesday.

The “core” CPI reading stood at 3.8% compared to a year earlier.

Rising gas prices and housing costs drove the hotter-than-expected reading.

It wasn’t the case before
Inflation cooled last year to 3%, which led Fed Chair Jerome Powell to signal they are done with rate hikes; the current Fed rate is 5.25% and 5.50%, per the FOMC. Economists and traders were optimistic that they would see six to seven interest rate cuts in 2024.

But after looking at the latest CPI data, big banks—including UBS, Barclays, and Goldman Sachs—have adjusted their forecast for rate cuts. Bank of America now predicts only one rate cut in December, compared to earlier predictions of up to four cuts.

When the first rate cut happens is important as cutting too soon could lock in high inflation, and cutting too late could harm the economy at a time when it is gearing up for the November presidential election. How the economy performs will affect who people vote for.

The inflation remains higher than the Fed’s 2% target.