Fed : first rate cut may not occur in June

By Volker Schmidt, Senior Portfolio Manager at Ethenea

No rate cut has long been expected for the Fed's upcoming meeting on 1 May. The latest inflation figures were simply too high. Instead, most investors are focusing on another of the FOMC's instruments: the balance sheet management. During the most recent press conference, FOMC Chairman JeromePowell hinted that the faster-than-expected pace of balance sheet shrinkage could prompt Fed members to engage in so-called tapering. Going forward, the Fed may reinvest some of the maturing Treasuries, and thus slow the pace of balance sheet reduction. "It will be appropriate to slow the pace of run-off fairly soon," Powell said during the press conference.

The decision on a possible tapering will also have implications for the next meeting in June: If the Fed does not take a decision on tapering in May, it will be postponed to June. It is anticipated that the decision on the first rate cut will be delayed to avoid having to make both decisions at the same time. A decision to taper the balance sheet in May would therefore increase the probability of a first rate cut in June.

It is evident that the rhetoric of US central bankers has become more hawkish in recent weeks. This is due to the concerning rise in inflation. The rate of inflation is declining at a much slower pace (towards the 2 per cent target) than it did at the beginning of the year, with some readings even pointing to an upward trend. In light of the aforementioned development, there is a growing number of voices that are completely doubting the possibility of interest rate cuts for 2024. Our outlook is more moderate, and we do not rule out the possibility of a rate cut in 2024. However, we believe it is unlikely that the first one will occur in June.

Volker Schmidt
Volker Schmidt

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Wim Heirbaut

Senior PR Consultant, Befirm

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About Ethenea

ETHENEA offers a wide range of attractive investment opportunities for different investor profiles: risk-minimised, balanced and equity-focused.

Capital preservation and the achievement of stable long-term returns are key components of the investment philosophy of the Ethna Funds. The fund management consistently realises this objective through active management and flexible asset allocation across various sectors and asset classes.

ETHENEA wants to make a contribution and offer responsible and sustainable investment solutions. Therefore, ESG criteria are an important part of the investment processes of all Ethna Funds (Article 8 SFDR).

Further information and legal information can be found at ethenea.com.

 

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