Meritz Securities forecasted on the 13th that the U.S. Federal Reserve (Fed) will cut the benchmark interest rate by 100bp (1bp=0.01 percentage points) within a year.
Yoon Yeo-sam, a researcher at Meritz Securities, stated, "With inflation maintaining a downward stabilization trend centered on housing costs, and the timing of rate cuts delayed, fatigue from high interest rates is accumulating while pressure from economic slowdown is increasing."
The Fed held the benchmark interest rate steady at the June Federal Open Market Committee (FOMC) meeting held the previous day (local time). In the Summary of Economic Projections (SEP) released on the same day, the interest rate forecast for this year was set at 5.1%, and the projection for March next year was 4.6%. This implies that the Fed is expected to lower the benchmark interest rate only once within the year, considering the current rate.
Researcher Yoon explained, "The reduction in the dot plot's rate cut projections (from 3 times to 1 time), which could be more hawkish than expected, might be a shock to the bond market, but it does not significantly deviate from the existing stabilization path to 3.1% in 2016," adding, "This is why the 10-year U.S. Treasury yield can remain around 4.3%."
Yoon further said, "For Fed officials to shift toward a more dovish stance, about two months until July are needed to confirm the path of inflation stabilization," and predicted, "Thanks to the stabilization of auto insurance premiums, which are the core component of supercore inflation, we expect inflation to enter a range stable enough to allow rate cuts by September."
He also assessed, "At this point, halfway through the year, if expectations for a 100bp cut by the second quarter of next year are maintained, considering the time value, it is important to recognize the value of the 10-year U.S. Treasury yield around 4.3%."
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