On Friday, Cit analysts forecasted that the Federal Reserve is poised to implement a series of interest rate cuts totaling 125 basis points (bps) by the end of the year. The firm anticipates a 25bps reduction in the upcoming week, with more substantial cuts of 50bps each in November and December.
The analysis from Cit suggests that the labor market data indicates an economy on the brink of a recession, with expectations of an accelerating rise in the unemployment rate in the near future. This shift in economic indicators has led Cit to adjust its expectation from a 50bps cut to a 25bps cut for the next week, although the decision is seen as a close call.
The rationale behind the forecast includes the recent stronger-than-expected shelter inflation, which might deter the Federal Open Market Committee (FOMC) from agreeing to a larger rate cut at this juncture. However, Cit points to the slowdown in core Personal Consumption Expenditures (PCE) inflation, which has dropped to 2% over the past three months, and the potential for further weakening in labor markets as reasons for the Fed to adopt a more aggressive rate-cutting stance as the year progresses.
Cit's projection aligns with the broader expectation of a dovish turn by the Fed, as it prepares to counteract the economic downturn. The anticipated rate cuts are seen as a response to the cooling inflation and the need to support an economy that is showing signs of stress.
In summary, Cit has adjusted its forecast for Federal Reserve rate cuts, predicting a total reduction of 125bps by the end of 2024, starting with a 25bps cut in the coming week and following with 50bps cuts in both November and December. This outlook is based on the current trajectory of economic indicators, including labor market trends and inflation measures.
In other recent news, economists from Wells Fargo (NYSE:WFC), Citi, Capitol Economics, and Evercore ISI have provided insights on the potential Federal Reserve rate cuts following the release of the latest Consumer Price Index data.
The economists predict a cautious approach by the Federal Open Market Committee, with a likely 25 basis point reduction in the federal funds rate. This prediction is based on the inflation data, which is seen as a key determinant of the Fed's rate decision-making process.
Barclays (LON:BARC) has reported a rise in labor costs for restaurants, with the average hourly wage reaching $20.82 in September 2024, marking a 5.1% year-over-year increase. This suggests a more stable outlook for the industry. Meanwhile, Deutsche Bank (ETR:DBKGn) strategists have suggested a possible 50 basis points rate cut by the Federal Reserve if upcoming labor market data is weaker than expected.
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