"Two Rate Cuts Expected in Dot Plot by June FOMC"

Need to Check Employment and Inflation Indicators
Buying Opportunity Exists Up to 4.8% Ceiling on US 10-Year Bonds

[Image source=Yonhap News]

Meritz Securities judged on the 2nd that the expectation of about two interest rate cuts will be maintained before confirming employment and inflation indicators twice until the June Federal Open Market Committee (FOMC) meeting. Accordingly, it evaluated that there are buying opportunities until June at a level where the 10-year U.S. Treasury yield centers around 4.5% and does not exceed the upper limit of 4.8%.

Yoon Yeo-sam, a researcher at Meritz Securities, stated, "Federal Reserve (Fed) Chair Jerome Powell maintained a conditional easing stance such as 'if employment slows down, we will cut rates' at the May FOMC, and it is important to check employment and inflation indicators twice until the June meeting."

The U.S. first-quarter Employment Cost Index (ECI) rose 1.2% compared to the previous quarter, exceeding both the fourth quarter of last year (0.9%) and experts' expectations (1.2%). Although concerns about sticky inflation dominate, the West Texas Intermediate (WTI) crude oil price in the U.S. fell to $79 the previous day, partially alleviating concerns about supply-side inflation.

Researcher Yoon analyzed, "Regarding the Consumer Price Index (CPI) results to be confirmed by the June FOMC meeting, I expect housing costs to average around 0.3% monthly and WTI crude oil prices to be around $80," adding, "I forecast two rate cuts according to the dot plot."

Researcher Yoon also predicted that the 10-year U.S. Treasury yield will inevitably fluctuate for the time being between expectations of two cuts and one cut from the previous day's level in the mid-4.6% range. He advised, "Currently, the bond market investment environment lacks buying factors, but considering the accumulating burden due to 'only America,' one should look for buying opportunities at a level where the 10-year U.S. Treasury yield does not exceed the upper limit of 4.8%."