Hana Securities: "US Interest Rate Cuts Will Be Limited to Two Times in September and December"

Neutral Committee Members Advocate for Interest Rate Cuts in Second Half
Possibility of Inflation Rebound ↑
Service Prices Rigid...Geopolitical Risks
If International Oil Prices Remain Stable, Inflation May Rebound in Q2

[Image source=Yonhap News]

Hana Securities stated on the 17th that "the U.S. Federal Reserve (Fed) is expected to cut interest rates only twice this year, in September and December."

Jeon Gyu-yeon, a researcher at Hana Securities, said, "Even after reviewing the speeches of Fed officials following the March FOMC, the likelihood of a delay in the timing of rate cuts is high."

Jeon explained, "Although Fed officials with voting rights in 2024 have a higher proportion of doves than hawks, neither side holds a majority, so the views of neutral stance officials are important. These neutral officials are expressing the need to either start rate cuts in the second half of the year or to wait."

He added, "Even the dovish officials who previously advocated for three rate cuts within the year before the March Consumer Price Index (CPI) release have begun emphasizing full confidence in price stability and see no need to rush rate cuts."

The inflation trajectory is more likely to rebound contrary to the Fed's hopes. This is because service prices are rigid. If service prices gradually decrease but goods prices rebound, the headline inflation will inevitably rise.

Jeon analyzed, "If geopolitical risks keep oil prices at current levels in the second quarter, due to base effects, inflation from April to June will rebound, and Fed officials will find it difficult to have confidence in price stability before the July Federal Open Market Committee (FOMC) meeting."

However, Jeon pointed out that the fundamental downward trend of inflation has not been damaged. He said, "Considering the decline in new rents and the slowdown in input prices within the ISM services index, the gradual downward trend in service prices remains valid," adding, "An environment conducive to rate cuts within the year will be established."