The U.S. Federal Reserve (Fed) hinted at the possibility of a rate cut once this year through its dot plot, and Neel Kashkari, president of the Minneapolis Federal Reserve Bank and a representative hawkish (favoring monetary tightening) official, predicted that "a December rate cut is a reasonable possibility." This marks a clear distinction from the market's widely expected rate cut in September.
On the 16th (local time), President Kashkari appeared on CBS's Face the Nation and said, "The median of the dot plot released last week shows a forecast of one rate cut," adding, "If there is one rate cut, it is highly likely to occur by the end of the year."
Earlier, at last week's Federal Open Market Committee (FOMC) meeting, the Fed updated its dot plot, raising the year-end rate forecast from 4.6% to 5.1%. This suggests that the current rate of 5.25-5.5% could be cut once by the end of the year. This is a retreat from the initial forecast of three rate cuts.
President Kashkari stated, "More evidence is needed to be confident that inflation is easing toward the 2% target," and assessed that "the fundamentals of the U.S. economy are much stronger than most other advanced economies worldwide." He also noted, "The labor market is outperforming expectations," adding, "It is not as overheated as it was one to two years ago and may cool further. However, the brakes from high-intensity rate hikes are not yet applied."
Regarding the December rate cut forecast, he described it as a "reasonable prediction," emphasizing, "It will actually depend on the indicators. We are in a very good position to review more inflation, economic, and labor market data before making any immediate decisions." Kashkari, known for his hawkish remarks within the Fed, does not have voting rights at this year's FOMC.
However, in the market, there are growing views that the Fed may ease monetary policy earlier than the dot plot suggests, citing recent economic indicators confirming a cooling trend. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day reflects about a 69% chance that the Fed will cut rates by at least 0.25 percentage points at the September FOMC. The prevailing expectation is that two more cuts will follow by the end of the year. Mohamed El-Erian, chief economic advisor at Allianz and a former PIMCO executive, pointed out last week that a December rate cut would be "too late," warning that "the delayed effects of rate hikes could become much more severe by then."
This week, the U.S. financial market is expected to be relatively quiet compared to last week, when major inflation indicators were released and the FOMC was held, partly due to the market closure on the 19th for Juneteenth Day.
Among these, retail sales data to be released on the 18th is a key indicator that can show consumer trends, which account for two-thirds of the U.S. economy. U.S. retail sales for May are estimated to increase by 0.3% month-over-month, rebounding from 0% in the previous month. If this occurs, inflation concerns may rise again, slightly dampening expectations for a rate cut. On the 20th, weekly initial jobless claims, a labor market indicator, will be released.
Other Fed officials expected to speak include Governor Lisa Cook, St. Louis Fed President Alberto Musalem, Dallas Fed President Lori Logan, Governor Adriana Kugler, and Richmond Fed President Thomas Barkin.
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