Fed to Cut Just Once in 2024: Barclays

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The Federal Reserve will cut just once in 2024 say economists at Barclays.

The bank is the latest to notably lower expectations for the amount of easing the Fed will do in 2024 following the April U.S. inflation release, with others warning that no rate cuts are likely at all.

"In the US, growth is strong and disinflation seems to have stalled. We now expect the FOMC to cut rates just once this year, in September, instead of the three cuts we had pencilled in previously, beginning in June. That first cut could be pushed back to December, if price pressures remain firm," says Barclays in a new research note.

U.S. inflation increased 3.5% year-on-year in March from 3.2% in February, exceeding market expectations for a 3.4% print. The all-important core measure of inflation rose 3.8% y/y, unchanged on February and above expectations for 3.7%.

"Bringing US inflation down will require tighter financial conditions, which means higher long-term rates," says Barclays.

The market is now fully priced for just one rate cut in 2024 and sees a 50/50 prospect of a second cut being delivered before year-end. This compares to seven cuts (150 basis points worth of easing) that was priced in for the year in January.

The reduction in expectations has boosted the Dollar to the top of the G10 leaderboard, while equity markets are finally starting to show strain as the loose monetary conditions expected at the turn of the year evaporate.

Barclays now expects the Fed to deliver just one 25bp cut this year, in September, followed by an every-other-meeting cut through the course of 2025.

Barclays expects core PCE inflation to fall to 0.20% m/m by June, in which case the 3m saar and 6m saar measures would show notable slowing that should open the door for a September cut.

"However, we think it is almost equally likely that the cut will be pushed out to December, especially if disinflationary progress proves slower than expected. Even if the FOMC cuts rates in September, as in our new baseline, we think it will want to wait until 2025 before proceeding with a second cut, to gain more confidence that inflation is on track to return to 2%," says Barclays' U.S. economist Marc Giannoni.