In just a few short months, Wall Street's expectations for the Fed's rate cuts this year have dropped from 7 to 3, and now, this number may further drop to 0.
Just at the end of last year, due to the rapid decline in inflation in the United States at that time, although the Federal Reserve was expected to only cut interest rates three times within the year, Wall Street believed that the Federal Reserve would be more aggressive in promoting interest rate normalization, and expected the Federal Reserve to cut interest rates as early as March, reducing the federal funds rate from the current level of 5.25-5.5% to 3.5% -3.75% for the whole year.
Now, under the influence of a series of economic data in the past few months, the Federal Reserve's first rate cut of the year has not yet been realized, and the market has lowered the expected number of Fed rate cuts from 7 to 3.
And last week, with several Federal Reserve officials stepping forward to show off their hawks, the US Labor Office also released super strong non farm payroll data, which led more and more economists on Wall Street to predict that interest rate cuts may not be seen for the rest of this year.
The Federal Reserve seems to be becoming increasingly hawkish
Just on Friday, April 5th, the US Bureau of Labor released a super strong report on non farm employment. The number of new jobs added in the United States in March significantly exceeded expectations, marking the largest increase since May last year. In the first two months of this year, the inflation data in the United States also continued to exceed expectations.
Before such economic data, the hawkish voices within the Federal Reserve seem to be getting louder. Last Thursday, the Federal Reserve's "Eagle King" and Minneapolis Fed Chairman, Kashikari, stated that with the US economy performing so well, there is no need for the Federal Reserve to cut interest rates:
"If our economy is running so attractively, people have jobs, businesses are doing well, and inflation is falling, why do we have to do anything?"
Federal Reserve Governor Bauman expressed a more radical view on Friday. She said that if US inflation remains above the Fed's long-term target of 2%, it may be necessary to further raise interest rates this year instead of lowering them:
&Amp; Quota; Although this is not my basic expectation, I still believe that in future meetings, if inflation stagnates or even reverses, we may need to further raise policy interest rates& Amp; Quota;
More and more economists are standing in line to "not cut interest rates within the year"
In fact, not only the Federal Reserve, but also more and more top economists on Wall Street are realizing that they may not see the Fed cut interest rates this year.
According to Ed Yardeni, President and Chief Investment Strategist of seller research firm Yardeni Research, in a report:; Quota; Investors may finally be considering the possibility of not lowering interest rates this year& Amp; Quota; He added that the recent rise in oil prices indicates that inflation still faces upward risks.
Other top economists advocating for no interest rate cuts this year include Mohamed El Erian, Chief Economic Advisor of Allianz Group, and Torsten Slok, Chief Economist of Apollo Global Management. Last month, El Erian stated that due to the stickiness of inflation, the Federal Reserve should wait "a few years" before lowering interest rates.
Slock warns that the frenzy for artificial intelligence stocks will make it difficult for the Federal Reserve to lower interest rates:
"We are absolutely in the artificial intelligence foam. Its side effect is that when technology stocks rise, it will ease the financial situation. This makes the work of the Federal Reserve more difficult."
After the release of the super strong non farm payroll report, the CME Federal Reserve observation tool showed that the market's expectation of the Fed's first interest rate cut in June has dropped from 55.2% a week ago to 50.8%. If the US CPI data to be released next Wednesday (April 10th) exceeds expectations again, the likelihood of this expectation falling below 50% - in other words, the prospect of the Federal Reserve cutting interest rates in June is already in jeopardy.
Bank of America analysts had previously anticipated that if the Federal Reserve did not cut interest rates for the first time in June, the first rate cut may be postponed until next year. As the 2024 presidential election approaches, it is impossible to cut interest rates in the second half of this year: "If the Federal Reserve tells the market that a rate cut in June is unreasonable, then a rate cut later this year will be difficult to make a reasonable move."
Can US stocks still rise?
However, although economists' expectations for interest rate cuts within the year are declining, they are not very pessimistic about the US stock market. Although a decrease in interest rates is theoretically beneficial for stock prices, in the long run, the ultimate driver of stock price increases is the growth of corporate profits.
Currently, against the backdrop of strong economic data in the United States, the market is increasingly confident in the profit expectations of American companies, which also supports the near record high US stocks.
Billionaire investor and founder of Fisher Investments, Ken Fisher, said that full employment data has boosted optimistic economic growth prospects, and the increasing popularity of artificial intelligence has also improved corporate efficiency, indicating that even if the Federal Reserve's interest rates remain high, stock prices may continue to rise.
If the US stock market and economy can indeed bear higher interest rates for a longer period of time, it will give the Federal Reserve more ammunition to significantly lower interest rates in order to stimulate the economy in the next inevitable recession - which seems to be good news for the US stock market in the long run.