The following is (in brief) from Westpac, analysts there see challenges ahead for the US economy that could bring nearer-term rate cuts back to the table:
- The market response to the March US CPI report suggests participants continue to place a much higher weight on inflation risks over activity. Services inflation is the reason why. While many in the market have argued this is due to a strong labour market and high wage growth, increasingly the data does not support this view.
- Services inflation is no longer being driven by the CPI sub-components tied to discretionary demand. Rather, current services inflation is primarily the legacy of strong goods inflation during the pandemic and capacity constraints.
- Just as the market became overly optimistic on the prospects for interest rate cuts in late-2023, participants are arguably now under-pricing the support the US economy will need into year end and come 2025
I think there is something to this. And I'll add in, with the US election coming in November a September rate cut is not out of the question. Yes (I've said this before), the Fed is independent, but not THAT independent :-)
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