Next couple inflation prints could be sticky
The Federal Reserve won’t have enough justification to begin cutting rates until later than many market participants anticipate, Morgan Stanley said. The firm’s forecast signals a rise in inflation coming over the next two months, said Ellen Zentner, Morgan Stanley’s chief U.S. economist. That means market expectations for a cut to interest rates in March are “overdone,” she said. Instead, the economist estimates that the Fed will likely wait until the fourth meeting of 2024 in June to start dialing back interest rates. “We think it will take until June for the Fed to have clear and convincing evidence inflation will return to the 2% target, and therefore begin cutting rates,” she told clients. Zentner said sticky inflation on services will push up the forthcoming two prints. Meanwhile, she said the all-important nonfarm payrolls data is “noisy,” so one weak print may not be enough to justify the central bank yanking down rates in March. Indeed, the most recent reading showed that the economy added 199,000 jobs in November. Zentner’s hypothesis comes as investors appear to be celebrating the likelihood of a policy change at the March meeting, which is the second of the new year. Fed funds futures are currently pricing in a nearly 70% probability of a 25 basis point cut at that gathering, according to the CME FedWatch tool. Disappointment on the monetary policy front could bode poorly for the current market rally. U.S. stocks have run up in December as an already-strong year enters its final leg. — CNBC’s Michael Bloom contributed to this report.
Aniket Pujari
6,159 PostsAniket Pujari is a passionate finance and technology enthusiast with a strong academic background in Financial Markets. Since 2015, he has been deeply immersed in the world of cryptocurrencies, blockchain technology, and global financial systems, building a wealth of knowledge and expertise in these rapidly evolving fields.
View All Posts