The Federal Reserve will announce its latest interest rate decision in the early hours of Thursday (21st) Beijing time. Given recent data indicating a resurgence in inflation, the market has "surrendered" and given up hope of a rate cut in March, instead betting that the first rate cut will occur at the June interest rate meeting.
However, Jim Bianco, a 40 year veteran of Wall Street and president and macro strategist at Bianco Research, warned on Monday that the window for interest rate cuts this year may be closing.
He believes that the Federal Reserve may remain stagnant until next year.
"I don't think the Federal Reserve will change its policy during the summer of the election year," he said in a program. "If they can't pull the trigger before June, then the earliest they can do is wait until November or December, with data support. And now, data cannot prove this."
Bianco used to be a securities and stock technical analyst at UBS. He believes that in order for Federal Reserve Chairman Powell to cut interest rates this spring, the economy must weaken significantly.
In the non landing phase
"The economy is too strong now," he said. "It is currently in the 'no landing phase', which we like to call it. This is not a Boeing aircraft, it has no parts detached, just continues to move forward at a speed of 2.5% to 3%."
The scenario of "no landing" refers to the situation where although the Federal Reserve keeps interest rates high, the economy maintains growth, the labor market is strong, and inflation is difficult to dissipate. In most aspects, the US economy remains very healthy.
At present, domestic corporate employers in the United States are still recruiting, with unemployment rates remaining low, stock markets hovering near historical highs, and inflation rates plummeting from their highs. However, at present, the average price in the United States is still far higher than the level before the COVID-19 pandemic - this is the source of many Americans' dissatisfaction. Republicans try to blame Biden.
Bianco further explained, "It seems that our inflation rate may bottom out around 3% instead of 2%. The Federal Reserve has made it very clear that they need to have confidence in reaching 2%. However, we have not achieved this."
Optimism is fading
Wall Street seems to have also begun to notice this, and optimism is gradually fading. Economists of Goldman Sachs Group previously adjusted their forecasts on the monetary policy of the Federal Reserve, and now it is expected that interest rates will be cut three times rather than four times this year.
Goldman Sachs economists such as Jan Hatzius wrote in their report on the 17th that the main reason for the downward forecast was a slight upward trend in the inflation path. They still expect the first interest rate cut in June, with four cuts in 2025 and the last occurring in 2026, with the forecast for the final interest rate remaining unchanged at 3.25% -3.5%.
In addition, Macquarie expects the Federal Reserve to cut interest rates by only 50 basis points in 2024. The European Central Bank will start cutting interest rates before the Federal Reserve, and the magnitude will be even greater.
On Monday, the CME Federal Reserve Watch tool showed that market expectations for a 25 basis point rate cut in June had dropped below 50%.
In addition, the yield of US treasury bond bonds is rising. The benchmark 10-year US treasury bond bond yield was 4.328%, the highest level in one month and approaching a four month high.
"They may even go higher," added Bianco.