The US Federal Reserve is only likely to cut interest rates once in 2024, in December, economists at UBS forecast, lowering expectations from its previous prediction, though counterparts at Goldman Sachs still expect two cuts.
Yesterday's Federal Open Market Committee (FOMC) meeting's summary of economic projections, SEP or 'dot plot' as it is better known, was decisive in pointing to only one 25 basis point rate cut in 2024.
"It is not even close," UBS said, noting that 11 of the 19 committee participants see no cuts or only one cut as appropriate this year.
The market-implied probability of a cut by September rose from 59% on Wednesday morning to a peak of 85% after US inflation came in softer than expected and then fell to 65% after the FOMC meeting.
Goldman Sachs said it continues to expect a first rate cut in September and a second cut in December, with its 2024 inflation forecast now "a touch below" the FOMC’s, which Chair Jerome Powell characterized as "fairly conservative".
"With two better rounds of inflation data now in hand, we think that if the next three rounds are in a similar range, the leadership is likely to push through a cut in September," the Goldman economists said.
UBS does not agree, seeing the macroeconomic data schedule for coming months, as offering "little information in time to change minds to put September back on the table".
The November meeting "has communication challenges", vis a vis the presidential election, the Swiss bank's economists said.
"In our view, the FOMC has effectively ruled out action until the December FOMC meeting, barring some unexpected and meaningful weakening in the labor market," was the UBS view.