Wall Street Forecasts July for Earliest Rate Cut, Up to 50bps in 2024

The March CPI in the US exceeded expectations, driven by persistent increases in gasoline and rental costs, signifying the third consecutive month of stubbornly high inflation. This suggests that the inflation resurgence observed in January and February cannot be solely ascribed to early-year price adjustments by firms.

According to the CME Group's FedWatch tool, traders are pricing in a 72.72% chance of an interest rate cut in September, while the likelihood of a rate cut in June stands at just 22.42%. Some economists even contend that the opportunity for rate reductions is narrowing. American economist Michael Gapen noted that should inflation rise unexpectedly, the Fed's rate cuts could be deferred until 2025.

Earlier Fed meeting revealed that, even before the release of Wednesday's higher-than-expected U.S. inflation data, Fed officials last month had already begun to express concern that the progress of U.S. inflation deceleration might have stalled, suggesting that a more protracted period of tight monetary policy may be necessary to curb the pace of price increases.

New York Fed President John Williams said on Thursday, "There's no immediate need for a shift in monetary policy in the short term." Meanwhile, Boston Fed President Susan Collins stated: "Recent data indicate that more time may be needed than I previously thought to gain greater confidence in the downward trajectory of inflation before beginning to ease policy." She added that a robust labor market "also reduces the urgency to ease."

Wall Street is also reassessing the Fed's policy trajectory. Several investment banks have poured cold water on the prospect of a rate cut in June.