© Reuters.
By Sinad Karametovic
Investing.com – US rate strategists at Bank of America (NYSE:) Global Research are urging the bank’s clients to ignore the interest rate cuts the market has recently begun to anticipate.
The Fed’s follow-up tool on our website believes that 51% of investors and experts believe that the Fed will fix the interest rate at its upcoming meeting, which begins on March 21, and that it will not raise the interest rate in future meetings above the 5.00% level.
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And according to Bloomberg data from this morning, the market is now evaluating close to 100 basis points of interest rate cuts in the next 12 months.
“The latest jobs report and yesterday’s CPI report show continued strength that poses a growing threat to the Fed’s goal of price stability, at least relative to the picture coming into the new year,” the strategists wrote in a note to clients.
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According to Bank of America, the Fed will raise rates 3 times and then pause. They added, “Prior to the recent failures of the banks, we were wary of bringing back the 50bp increase given the strength of the data. Today’s CPI report was close to consensus levels, but the previous level of basic services is not easing as quickly as the Reserve Bank might like. The Fed is seeing it..and that puts them on higher alert and makes a rate cut in June less likely under a low contagion risk scenario.”
Conversely, the Fed may choose to pause in March. While that scenario is possible, the strategists add, it is still very unlikely that the central bank will cut interest rates by June “because the 4.58% fed funds rate is relatively low compared to the average ‘point’ of 5.1% and that the evidence So far it indicates that current levels are not constraining enough to control inflation.”
As they stated in a note: “We believe interest rate cuts will have little value towards addressing confidence in the banking sector about the safety of deposits.” Contracts were also trading at a sharply lower level in the pre-market open on Wednesday, down 1.6%.
