Economists at Barclays said on Friday they now expect the Federal Reserve to make two interest rate cuts in 2024, citing moderating inflation and labor market data as reasons for revising their forecast for a single cut.
Barclays had previously expected one cut in September by the Federal Open Market Committee. This week, the government Consumer Price Index (CPI) Report for June showed the first month-on-month decline in headline prices since May 2020. The year-on-year core CPI rose 3.3%, the smallest increase since April 2021.
“Given the June inflation data, coupled with a gradual cooling in the labor market, we are changing our Fed forecast. We now think the Fed will cut rates twice this year, in September and December, rather than once,” Marc Giannoni, chief U.S. economist at Barclays, said in a note. Two meetings with 25 basis point cuts each would bring the federal funds rate to a range of 4.75%-5% by the end of this year.
Barclays now expects three rate cuts in 2025, rather than four, with quarter-point reductions in March, June and September. Its 2025 target range remains unchanged at 4%-4.25%.
“June CPI inflation surprised on the downside and showed a broad-based slowdown,” Giannoni said. “In addition, the labor market appears to be gradually cooling, with labor demand moderating, job vacancies per unemployed returning to near pre-pandemic levels, and a hiring rate below pre-pandemic levels,” he said.
“We also believe that the FOMC is increasingly confident that the monetary policy stance is restrictive, which should further convince the FOMC to cut rates in September and December,” Giannoni said.
This week, traders increased the odds that the Fed will begin its rate easing cycle in September. Stronger sentiment on rate cuts helped push the S&P 500 (SPY) up 0.9% on the week.
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