SGOV - The Case For U.S. Interest Rate Cuts

2024-06-07 11:48:00 ET

Summary

• Market interest rate cut expectations have swung wildly this year on fluctuating data and cautious messaging from Federal Reserve officials.
• Nonetheless, we are seeing broadening evidence that can justify the Fed starting to move policy from a restrictive stance to a slightly less restrictive one from September onwards.
• The resilience of the US economy to higher rates has been remarkable, but we do expect the stresses being felt by lower-income households to become more evident and a consumer slowdown to emerge.

By James Knightley

Firstly: One good month on inflation needs to become a trend

We continue to look for the Federal Reserve to cut interest rates from September on the basis that it believes monetary policy is restrictive at 5.25-5.50% in an environment where they view the neutral interest rate as being around 2.6%. They don't want to cause a recession if they don't have to and if the data allows them to start making monetary policy slightly less restrictive, we think they will take that opportunity....

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