Goldman Sachs Chief Economist Jan Hatzius stated that he still expects the Federal Reserve to implement three interest rate cuts and would be “very surprised” if no trims were deemed necessary. Minneapolis Fed President Neel Kashkari mentioned that zero rate cuts could be a possibility if inflation remained stable. Fed Chair Jerome Powell also commented on the uncertainty surrounding potential interest rate cuts, stating that it would take some time for policymakers to evaluate the current state of inflation.
Market participants have been closely monitoring comments from Fed officials regarding the expected number of rate reductions this year. Many are eagerly awaiting Friday’s jobs data for further clues on the labor market and inflation. Speaking at the Ambrosetti Forum, Hatzius expressed optimism about the U.S. economy, with a growth outlook close to 3% this year and a recession probability of 15% over the next 12 months. He also projected a cooling inflation rate, with the PCE price index at 2.4% by the end of 2024 and 2% next year.
Hatzius believes that under his forecast, rate cuts are expected based on the statements from Chair Powell and other Fed officials. While acknowledging the uncertainty surrounding the timing of these cuts, he would be quite surprised if rate cuts did not materialize this year. In its last meeting, the Fed held interest rates steady at 5.25%-5.5% for the fifth consecutive time, signaling a projected three quarter-percentage point cuts by the end of 2024.
Market traders are estimating a nearly 94% likelihood of no change in rates at the Fed’s May policy meeting, with a lower probability of a cut in June compared to the previous week. The CME Fed Watch Tool indicates a roughly 60% chance of a rate cut at the June gathering. Hatzius remains optimistic about the economic outlook for the U.S., expecting robust growth this year alongside cooling inflation. Overall, the uncertainty surrounding the timing of potential rate cuts persists, with market participants eagerly awaiting further updates from Fed officials.
