A recent Reuters poll of reputable U.S. economists has a majority of them predicting that the Fed will begin cutting rates in June. Those polled believe the central bank is waiting on additional data outlining the state of inflation and whether it’s fallen to the 2% target. Rate cuts by the Fed would set the tone for the BOC, and the world.
In his recent Congress testimony, Fed Chair Jerome Powell hinted at potential policy easing later this year. Despite the speculation of an early rate cut, persistent inflation and a resilient job market may delay the decision. Financial markets now align with Fed officials, anticipating the first rate reduction in June. According to a recent Reuters survey, 72 out of 108 economists predict a rate cut in June, reflecting a shift from previous expectations. Concerns about a delayed rate cut outweigh those about an earlier one, as 85% of respondents believe the risk lies in a later-than-expected cut.
The Fed emphasizes the need for confidence in inflation before adjusting its policy stance. While PCE inflation fell to 2.4% in January from its peak in June 2022, policymakers await sustained movement towards the 2% target. Despite projections of 2.2% PCE inflation for 2024, other measures like CPI and core CPI remain above target until at least 2026.
The U.S. economy, projected to grow at an average rate of 2.1% this year, exceeds the non-inflationary growth rate of 1.8%, suggesting a measured approach to rate cuts. While opinions vary on the magnitude of rate cuts, about 50% of respondents foresee three-quarters of a percentage point or less. A majority believes any changes to the dot plot projection would likely indicate fewer cuts this year.
U.S. economy stable, for now:
Jamie Dimon recently acknowledged the possibility of a recession in the U.S., cautioning against prematurely dismissing the idea, yet suggesting that the Federal Reserve should exercise patience before making any decisions to cut interest rates. Speaking at the Australian Financial Review Business Summit in Sydney, Dimon expressed a more reserved outlook compared to his recent optimistic stance on global markets.
Dimon highlighted that the world is currently pricing in a soft landing, estimating the probability at 70-80%. However, he countered this consensus by stating that the likelihood of a soft landing within the next year or two is only half of that, with the worst-case scenario being stagflation. The JPMorgan Chase & Co. CEO pointed out that economic indicators have been significantly affected by the ongoing impact of Covid-19, advising the Federal Reserve to exercise caution and wait for clearer signals before considering a reduction in interest rates.
While recognizing the current robust state of the U.S. economy, characterized as “kind of booming,” Dimon maintained that the risk of a recession persists. He emphasized the distortions caused by the pandemic, urging the Fed to exercise prudence in interpreting economic data. According to Dimon, unemployment in the United States is currently at a very low level, and wages continue to rise, contributing to the overall strength of the economy.
Dimon’s comments reflect a more nuanced perspective compared to his earlier optimistic outlook, particularly in light of his previous warnings about an impending economic “hurricane” in 2022. Despite the uncertainties surrounding the economic landscape, he urged the Federal Reserve to carefully consider the potential impact on its credibility before hastily implementing interest rate cuts.
Federal Reserve Chair Jerome Powell’s recent statements indicate that the central bank is approaching the confidence needed to initiate interest rate reductions. Powell emphasized the importance of sustained inflation at 2%, signaling a cautious yet optimistic stance. Meanwhile, Dimon also commented on the upcoming U.S. election, expressing uncertainty about the potential winner between Joe Biden and Donald Trump, describing the situation as a nerve-wracking “circus.” Despite acknowledging Trump as an “amazing political figure,” Dimon called for more thoughtfulness and rationality, particularly in foreign policy discussions.
Jamie Dimon’s latest remarks underscore a more measured and cautious perspective on the economic landscape, urging prudence from the Federal Reserve in the face of potential recessionary risks and emphasizing the need for clear signals before considering any adjustments to interest rates.
In summary, the Fed’s cautious stance reflects a data-dependent approach, with economists anticipating a gradual cutting cycle in June as confidence in inflation builds. The consensus emphasizes the importance of a balanced and forward-looking strategy to navigate economic uncertainties.