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- Fed: First cut in June still likely – Commerzbank
Fed: First cut in June still likely – Commerzbank
The US Federal Reserve is moving closer to cutting interest rates. A first move at the meeting in June is still likely if the next inflation data show progress, economists at Commerzbank say.
Fed wants to gain more certainty that inflation has really been beaten
While the Fed is moving towards lowering interest rates, it still needs more certainty that inflation will fall to 2% in the longer term. After the latest surprisingly high data, it is unlikely to have this confidence at its next meeting on May 1. The earliest date for a first rate cut is, therefore, the meeting in June, where we expect a move of 25 basis points as before. However, if the next inflation report is clearly disappointing again, the Fed could wait longer.
In any case, we only see relatively limited potential for rate cuts totalling 125 basis points which would bring the upper bound of the target range to 4.25% in spring 2025. The reason is that inflation is likely to remain above target in the longer term due to the tight labor market and structural factors that boost inflation such as the worsening demographics and increased protectionism.
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