On Thursday, analysts from Natixis Research indicated that Federal Reserve officials, including Chair Jerome Powell, are likely to set the stage for a possible interest rate cut in September. This forecast follows the release of the Consumer Price Index (CPI) data for June, which marked the third consecutive month of slowing inflation.
The Natixis team highlighted that this trend strengthens the position of the Fed's more dovish members who advocate for reducing rates sooner rather than later.
The June CPI data suggested a continued decline in inflation, potentially influencing the Federal Reserve's monetary policy decisions.
According to Natixis Research, various economic sectors are experiencing a slowdown, and with the dollar maintaining strength, there appears to be no immediate factor that could reignite inflation in the near future. This context, combined with consumers' growing reluctance to spend, supports the case for a rate cut.
Despite concerns over labor market risks, the analysts emphasized that the softening inflation remains a key prerequisite for the Fed to initiate a cycle of interest rate reductions. The recent CPI figures are expected to boost the confidence of the Fed in the sustainability of the disinflationary trend. Natixis Research anticipates that upcoming communications from Fed officials will likely continue to prepare markets for a potential easing of monetary policy in the fall.
The possibility of a September rate cut comes as the Federal Reserve balances the goal of controlling inflation with the need to support economic growth. The central bank's next steps will be closely watched by investors and analysts alike, as they could have significant implications for financial markets and the broader economy.
In other recent news, BCA Research predicts a decline in the S&P 500 to 3750, anticipating a recession towards the end of 2024 or the beginning of 2025. They also expect a modest weakening of the US dollar in the upcoming months, followed by a strengthening during the recession.
In contrast, U.S. households have reached a record net worth of $161 trillion in the first quarter of 2024, largely driven by rising equity prices and real estate values, according to a Federal Reserve report.
Analysts at Goldman Sachs (NYSE:GS) project a strong earnings cycle and increased market confidence by the end of 2024. However, JPMorgan (NYSE:JPM) expresses concerns about high U.S. stock valuations amid inflation fears and unrealistic consensus expectations for near 20% profit growth.
Asian markets have also shown optimism surrounding potential interest rate cuts by the U.S. Federal Reserve, boosting the MSCI's broadest index of Asia-Pacific shares outside Japan by 1.14%. These are some of the recent developments in the financial markets.
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