Federal Reserve Rate Cut Forecast
Investing.com — The Federal Reserve will deliver a hawkish rate cut on Wednesday, but not as hawkish as the market expects, according to Standard Chartered.
They predict the Fed will follow up with another rate cut in January due to ongoing softness in the labor market.
Market Expectations
Fed funds futures currently price less than a 20% probability of a follow-up cut on January 29, which Standard Chartered deems too low.
December Labor Market Data
The December labor market data will likely indicate continued softness, justifying another cut in January. Standard Chartered's baseline forecast anticipates a cut on January 29 if the labor market data weakens further, specifically citing a higher unemployment rate or nonfarm payrolls growth of 125,000 or less as sufficient criteria for a cut.
Investor Attention
As a December rate cut is widely expected, the Fed's summary of economic projections (SEP) will be the main focus of investors. There are expectations that the Fed might indicate fewer cuts.
However, Standard Chartered believes the Fed will wait until at least March to make major changes to monetary policy. The bank forecasts the end-2025 federal funds rate at 3.625%, with a possible drop to 3.125%.
Conclusion
While anticipating rate cuts, Standard Chartered suggests that the pace and timing may be more measured than the market currently expects.
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