**The Fed’s Fate: Wall Street’s Crystal Ball**
**Sowing the Seeds of Uncertainty**
Wall Street anxiously anticipates the Federal Reserve’s (Fed) next move, its collective gaze fixed on the outcome of this week’s pivotal meeting. While most economists predict an eventual interest rate cut, the path forward remains shrouded in uncertainty.
Goldman Sachs economist David Mericle acknowledges the mixed signals emanating from the meeting. While the Committee acknowledges the lack of inflation progress, Chair Jerome Powell strikes a dovish tone in his press conference, leaving analysts in a state of interpretive limbo. Goldman maintains its forecast of two rate cuts this year, but cautions that an inflation surge could throw a wrench in those plans.
The futures market reflects this hesitance, with traders pricing in only one potential rate cut and a non-negligible 15% chance of an interest rate hike. The major forecasting firms offer a diverse range of predictions:
- Citigroup: An outlier with a bold call for four rate cuts this year, citing the Fed’s expectation of inflation easing and its potential impact on policymakers’ resolve.
- Morgan Stanley: Sees a high probability of rate cuts beginning in July, but acknowledges the narrow path to this outcome in light of recent inflation trends.
- Barclays: Cautious about the timing of rate cuts, suggesting September as the earliest, but warns of a hawkish shift if inflation remains elevated in the first quarter.
- Bank of America: Advises patience, stating that the Fed will wait for more conclusive evidence on inflation before it commits to a dovish stance.
**Caught Between a Rock and a Hard Place**
Economists unanimously believe the Fed is betting on an eventual inflation slowdown, bringing it closer to its 2% annual target. However, the million-dollar question is how willing the institution is to act on this belief and risk being perceived as indecisive.
As Citigroup’s Andrew Hollenhorst notes, Powell’s comments align with the firm’s view that the Fed will lower rates if core inflation data softens or the labor market weakens.
Morgan Stanley’s Ellen Zentner shares this sentiment, highlighting the progress the Committee has made toward its 2% goal over the past year. Despite the lack of a breakthrough this year, she predicts three rate cuts based on her belief in continued inflation decline and increased unemployment.
On the more cautious side, Barclays’ Marc Giannoni cautions that if inflation remains strong, the first rate cut could be pushed back to December. He also warns of the possibility of four rate cuts in 2025.
**In the Hold Pattern**
Bank of America’s Michael Gapen encapsulates the current state of affairs succinctly: the Fed is in “wait-and-see” mode. It’s willing to hold rates steady for as long as necessary to gather irrefutable evidence of inflation’s trajectory. This, in turn, translates to a delayed rate cut timeline.
As the Fed navigates these uncertain waters, Wall Street’s forecasts will serve as both a barometer of market sentiment and a guide for investors navigating the ever-evolving economic landscape.
