The Federal Reserve is expected to cut interest rates just two times in 2024, according to a note from a prominent economist. This forecast contrasts sharply with earlier expectations of up to seven rate cuts, causing market turmoil with the Dow Jones Industrial Average dropping over 500 points in recent trades.
The revised forecast comes after a hotter-than-expected March Consumer Price Index (CPI) report, driven in part by a surge in auto-related costs such as insurance and repairs. The economist has adjusted the prediction from three rate cuts to two, delaying the first cut from June to July and anticipating subsequent cuts in July and November.
The March core CPI rose above consensus expectations, with a significant contribution from the auto market. Higher prices in private transportation categories, particularly car insurance and repair costs, played a substantial role in the monthly core gain.
Investors are now awaiting the March Personal Consumption Expenditures (PCE) data, with expectations that certain price increases seen in the CPI report, like auto insurance, may not be reflected in the PCE report. Despite this, the economist has raised expectations for the March PCE report.
The Federal Reserve's recent dot plot revealed a nearly even split among policymakers regarding the number of rate cuts this year. The economist believes that the Committee will likely consider a series of firmer inflation prints from January to March against potentially softer prints in the following months before making further decisions.
