- Some policymakers expressed uncertainty about the recent US inflation figures.
- Austan Goolsbee said he expects three rate cuts this year.
- Markets have priced a 71.9% chance that the Fed will cut rates in June.
Equities fell on Monday, pausing last week’s rally as investors assessed Fed remarks. The US stock market closed the previous week with gains after the Fed meeting where Powell maintained his dovish stance.
Despite the recent hot inflation figures, Powell maintained his outlook for three rate cuts in 2024. However, economic data continues to beat forecasts, raising doubts about this outlook. Moreover, the Swiss National Bank’s recent interest rate cut has highlighted that inflation is easing in major economies. Meanwhile, the Fed might not be as dovish as expected if US inflation remains persistent. This contrast could make other markets more attractive for investors looking for lower borrowing costs. As a result, it would lead to a decline in US equities.
Furthermore, some policymakers expressed uncertainty about the recent inflation figures on Monday. Notably, Fed governor Lisa Cook emphasized caution in cutting rates as US housing inflation has remained persistent. However, there is hope that the figures will soon fall, leading to a broader decline in inflation.
Meanwhile, Fed’s Raphael Bostic said his confidence in the progress to lower inflation has dropped since December. At the same time, policymakers like Austan Goolsbee said he expects three rate cuts this year, which aligns with Powell’s more dovish tone. Austan maintained that inflation was trending downwards and would reach the 2% target. Still, he acknowledged the puzzle of the last inflation report.
Despite a more dovish outlook, policymakers await more data to gain confidence that inflation is falling. Consequently, investors will pay attention to the Core PCE price Index this Friday. This report will give a clearer picture of inflation and shape the outlook for Fed interest rate cuts. Currently, markets have priced a 71.9% chance that the Fed will cut rates in June. However, this figure might change with incoming data.
On individual stocks, Boeing shares rose after the company announced a looming change in management. At the same time, Walt Disney rose on an upgrade to its rating, while chipmakers Nvidia and Micron Technology helped push the Nasdaq higher during Monday’s session.
US new home sales (US Census Bureau, Bloomberg)
Meanwhile, data from the US showed a slight decline in new home sales in February. Still, the underlying trend was strong as demand for previously owned homes remained high.
