The Bank of Korea: "Inflationary Pressure Persists... US Interest Rate Cut Expected in June"

8 out of 10 Investment Banks Forecast a US Interest Rate Cut in June

As the slowdown in U.S. inflation stalls, there are projections that the timing of the benchmark interest rate cut is being pushed back.

On the 13th, the Bank of Korea's New York office conducted its own survey targeting local investment banks, and 8 out of 10 expected the U.S. Federal Reserve (Fed) to cut the benchmark interest rate in June. The remaining 2 anticipated a cut in May. In last month's survey, expectations for rate cuts in May and June were evenly split, but this month's survey shows the timing of the rate cut has been delayed.

The Bank of Korea's New York office explained that the easing of inflationary pressures is proceeding more slowly than expected, pushing back the forecast for the start of rate cuts.

In fact, the U.S. Department of Labor announced the February Consumer Price Index (CPI) the day before, which rose 3.2% year-on-year. This slightly exceeded the market expectation of 3.1%. The core CPI, excluding energy and food, rose 3.8%, also surpassing the expected 3.7%.

The U.S. CPI inflation rate recorded a peak of 9.1% in June 2022 and then showed a slowing trend, but since June last year, it has fluctuated in the low to mid 3% range.

Sticky inflation exceeding the Fed's target of 2% continues, pushing back market expectations for a U.S. benchmark interest rate cut. The expected year-end benchmark rate reflected in this month's U.S. interest rate futures market rose to 4.41%, up from last month's forecast of 4.18%.

U.S. consumers' inflation expectations are also on the rise. According to the 'Consumer Expectations Survey' released by the Federal Reserve Bank of New York on the 11th, the median expected inflation in the U.S. for February, three years ahead, was 2.7%, up 0.3 percentage points from the previous month's survey. The expected inflation for five years ahead was 2.9%, the highest since August last year (3.0%).

A Bank of Korea New York office official stated, "The Fed is expected to maintain the policy rate target range for the time being," adding, "However, it is expected to monitor reserve movements and data, begin discussions on slowing the pace of balance sheet reduction in earnest, and review the timing of rate cuts."