Barclays economists on Friday said they now expect the Federal Reserve to make two cuts in interest rates in 2024, citing softening inflation- and labor-market data as reasons to revise its call from one cut.
Barclays had previously expected one cut in September by the Federal Open Market Committee. This week, the government’s Consumer Price Index (CPI) report for June showed the first month-over-month decline in headline prices since May 2020. Core CPI on Y/Y increased 3.3%, the smallest rise since April 2021.
“Given the June inflation data, along with a gradual cooling of the labor market, we are changing our Fed call. We now think the Fed will cut rates twice this year, in September and December, instead of once,” Marc Giannoni, Barclays’ chief U.S. economist, said in a note. Two meetings with cuts of 25 basis points each would pull the fed funds rate to a 4.75%-5% range by the end of this year.
Barclays also now foresees three rate cuts in 2025, instead of four, with quarter-point reductions in March, June and September. Its 2025 target range is unchanged at 4%-4.25%.
“June CPI inflation surprised to the downside and showed broad-based deceleration,” Giannoni said. “In addition, the labor market appears to be gradually cooling, with labor demand moderating, job openings per unemployed returning to near pre-pandemic levels, and the hiring rate below pre-pandemic levels,” he said.
“We also think the FOMC is growing increasingly confident that the monetary policy stance is restrictive, which should further convince the FOMC to cut rates in September and December,” Giannoni said.
Traders this week boosted odds on the Fed starting its rate-easing cycle in September. The strengthened view on rate reductions helped push the S&P 500 (SP500)(SPY) higher by 0.9% for the week.
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