No Fed Rate Cuts in 2024: Société Générale

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Société Générale has scaled back its expectations for the Federal Reserve to cut interest rates, saying it won't lower rates until 2025.

"Following continued strong US economic data, rate cut expectations are being scaled back further. We now expect none from the Fed until next year," says Klaus Baader, Global Chief Economist at Société Générale in London.

The call comes in the wake of last week's above-consensus U.S. inflation print that confirmed inflationary pressures were once again building in the U.S. These data came just days after another hot U.S. job report that suggested the cooling the economy needs to undergo to bring inflation down remains elusive.

"Consumer prices picked up significantly in the early months of 2024 compared to the latter half of 2023. The Fed probably perceives this as a temporary three-month fluctuation. Nevertheless, this development may have shaken their confidence, which seems unlikely to recover in time for rate cuts this year. Consequently, our attention turns to 2025 for potential easing," says Baader.

A large majority of investment banks continue to see a rate cut in 2024, but of late, dissent from this consensus has been growing. Apollo Global Management caused a stir on March 01 when it said it now expects the Federal Reserve to hold interest rates unchanged for the remainder of 2024.

The market entered 2024 with 150 basis points of cuts priced for the year, but this now stands at approximately 38bp, suggesting the market sees one cut and is 50/50 on a second.

This rerating in expectations has been met by a stronger Dollar and an easing in equity markets from recent peaks. Should the market come around to the view that 2024 cuts are entirely off the table, further USD strength and equity market weakness is likely.