The recent wave of stronger-than-expected economic data has raised doubts about the future rate-cutting path, but those worries are overblown, Evercore ISI says, and there’s a strong case for two more cuts this year as the Fed tries to maintain a strong labor market.
“We think market volatility in November and December overdid Fed rate cuts. November looks rock solid to us right now, and December looks very likely, though not necessarily watertight, as there is more time to collect data,” Evercore ISI analysts said in a Friday note.
The Federal Reserve is likely to cut rates in both November and December, Evercore ISI analysts said in a Friday note, bringing the benchmark rate down to a range of 4.25% to 4.5%.
The call for a rate cut in November and December comes even as recent strong economic data, including retail sales and unemployment figures, have led some market participants to question whether the Fed is likely to pause at upcoming meetings.
However, Evercore ISI believes the Fed is unlikely to be swayed by recent data as the central bank’s primary focus is to bring rates back to a “more neutral framework to maintain a robust labor market while inflation returns to target levels.”
Current interest rates, meanwhile, remain at levels that continue to dampen growth and inflation.
Real interest rates remain significantly elevated compared to “conventional views on what a neutral framework might look like even in the near term,” the analysts said.
“We therefore believe there is a strong bias to cut rates twice more after December at consecutive meetings to 4.25-4.5 percent before considering a slowdown,” they added.
Looking ahead to 2025, Evercore ISI revised its growth forecast upwards, expecting a boost from the carryover effect of increased fiscal spending and an expected rebound in credit growth.
While the first phase of rate cuts this year appears to be on safer ground, the second phase of rate cuts will be conducted with greater caution.
“The more nuanced judgments will come in the second leg, from 4-4.5 percent to 3-3.5 percent, when the Fed will learn more about neutral and will need to consider how to remain dynamically well-positioned, including with respect to political shocks if Trump wins,” the analysts said.
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Reference;
Ebrahim, Y. (2024) Fed to cut twice more this year as worries about recent strong data ‘overdone’ By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/economy-news/fed-likely-to-cut-twice-more-this-year-as-worries-fed-rate-cuts-overdone-3671577 (Accessed: 19 October 2024).
