Fundstrat’s Tom Lee says the Fed’s first rate cut in June is still on track as inflation falls sharply

Analysts say Fed Chairman Jerome Powell may begin reducing the Fed’s balance sheet this year.Kevin Dickey/Getty Images

  • Fundstrat’s Tom Lee said the Fed’s first rate cut is still expected to happen in June.

  • That’s because inflation is falling “like a rock” by most measures, he said.

  • However, investors see only a 57% chance of a rate cut in June, according to the CME FedWatch tool.

Tom Lee, head of research at Fundstrat, said the Fed remains ready to cut interest rates for the first time in June as the pace of inflation continues to slow.

Lee, who correctly predicted that stocks would rise 20% last year, said he expected the Fed to start cutting interest rates in less than two months. In a video for Fundstrat clients, he cited the latest inflation measures as evidence of rising prices in the economy. is cooling, and three dovish signs were pointed out.

first of all personal consumption expenditure indexthe Federal Reserve’s preferred inflation gauge, increased at an annual rate of 2.8% in February, the slowest price increase in three years.

Lee noted that consumer inflation expectations are also “falling”, with the median one-year inflation forecast remaining around 3% in February, according to the Bureau of Statistics. The latest survey from the University of Michigan.

Lee also pointed to France’s core inflation data – the first inflation data released in the global economy in March. Inflation in France fell to 0.2% last month from 0.9% – a sign that inflation is likely to cool in most countries. This is especially true given the possibility of “statistical bias” in January and February’s inflation data, Li said.

All of this suggests the Fed may cut rates sooner than the market expects, which is good news for stocks. Traders have been awaiting a rate cut from the Federal Reserve for the past year, but the market is pricing in just $55.Chances are the Fed could cut interest rates by 75 basis points or more this year, according to Fed data CME FedWatch Toollower than the 85% odds priced a month ago.

Meanwhile, only 57% of investors expect the Fed to cut interest rates for the first time in June.

This may be because the market focuses on manufacturing prices, while the ISM price index rose to 55.8% in MarchLee noted that this was the only hawkish inflation indicator launched in the past two trading days.

“I think this is a scam. Actually, we will get more verification on April 10,” Li said of the March consumer price index report. “Our base case is still that inflation has dropped significantly. “

However, some economists warn that inflation risks will remain elevated for longer due to lingering price pressures in the economy. The Fed should wait’It took a few years to start cutting interest rates.Top economist Mohamed El-Erian recently warned that underlying inflation rates associated with a strong economy could rise in recent years.

Read the original article business insider

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