The expectation that the Federal Reserve would cut interest rates this year has been thrown into doubt after Chair Jerome Powell said there has been “a lack of further progress” on reaching the Fed’s 2% target for lowering inflation. If rate cuts come at all this year, they wouldn’t be until at least September, according to economists.
“My sense is they need two, probably three consecutive months of inflation numbers that are consistent with that 2% target,” said Mark Zandi, chief economist at Moody’s Analytics. “If that’s the bar, the earliest they can get there is September. I just don’t see rate cuts before that.”
Inflation hovers around 3% currently, a metric that hasn’t moved much over the past several months. As of Wednesday afternoon, CME Group’s FedWatch gauge has traders pricing in at around a 71% probability that a rate cut won’t happen until September, with a slight lean toward a second one in December.
Although the odds of no rate cuts occurring until 2025 were around 11% on Wednesday, Bank of America economists believe there is a “real risk” that one won’t come until at least March 2025. Citigroup economists, on the other hand, still believe that rate cuts will start to begin in June or July.
