[Click eStock] "Fed to Cut Interest Rates Twice by Year-End"

Korea Investment & Securities forecasted on the 19th that "the U.S. Federal Reserve (Fed) will cut the benchmark interest rate twice in total by the end of the year."

[Image source=Yonhap News]

Moon Da-woon, a researcher at Korea Investment & Securities, said, "Last month’s Consumer Price Index (CPI) and Producer Price Index (PPI) both showed consecutive surprises, causing the dollar index to rebound to 103.4 points last week," adding, "Since the components of the PPI are highly correlated with the Personal Consumption Expenditures (PCE) price index, which the Fed closely monitors, concerns about sluggish inflation spread rapidly." He continued, "Both short- and long-term U.S. Treasury yields rose, and the pressure of a strong dollar expanded again," explaining, "This was due to the Federal Open Market Committee (FOMC) delivering a hawkish hold and more conservative rate guidance than the market expected."

Moon predicted that the March FOMC meeting will be a turning point where expectations for a rate cut in June will retreat once again. He analyzed, "The market still places weight on the possibility of a June cut," and "This is influenced by the unemployment rate at the beginning of the month exceeding market expectations and Fed Chair Powell’s guidance referring to a timing ‘not far from’ that stimulated rate cut expectations." He added, "Last week’s major inflation indicator surprises reversed the mood," and "The Fed is expected to maintain a hawkish hold stance at this meeting, showing vigilance toward inflation."

Moon said, "The Fed will focus on managing market expectations, concerned that financial easing due to rate cut expectations could lead to upward price pressures from increased aggregate demand," and "I expect the expectations for a June rate cut to steadily diminish after this meeting." He added, "Considering the still robust U.S. economy and strong demand-side inflationary pressures, the Fed is expected to cut rates twice in total from the July meeting through the end of the year."