Bank Drops Rate-Cut “Bomb” on Markets
Citi Drops Rate Cut "Bomb" on Friday
Chair Powell’s dovish comments in Sintra together with recent data suggest a first rate cut is very likely in September. A continued softening of activity will provoke cuts at each of the subsequent seven Fed meetings, in our base case.
-Citi Research
Contents:(Excerpted)
- Bottom Line:
- Citi's Forecast of 8 Rate Cuts
- Introduction
- Citi’s Prediction: An Overview
- Key Drivers Behind the Forecast
- Expected Economic Impact
- Implications:
- Economic Charts
- Fed Charts
- Election Update
Bottom Line:
Authored by GoldFix ZH Edit
Citi's Forecast of 8 Rate Cuts
Introduction:
Citi's recent report forecasts a significant shift in the U.S. monetary policy landscape, predicting seven to eight interest rate cuts beginning in September 2024. Here are the key points of Citi's forecast and explored implications of these anticipated monetary policy changes.
Citi’s Estimates:
Citi's analysis points to an expected series of seven interest rate cuts by the Federal Reserve after an initial rate cut in September. This forecast stems from an anticipated economic slowdown and the need to mitigate recession risks. The report suggests these cuts are essential to stimulate economic activity and manage inflationary pressures.
Key Drivers Behind the Forecast
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Economic Deceleration: The report identifies signs of slowing economic growth as a primary driver for the forecasted rate cuts. The Federal Reserve’s response to these indicators is crucial to preventing a deeper economic downturn.
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Inflation Control: Controlling inflation remains a significant concern. Citi’s forecast implies that the Fed will use rate cuts as a tool to maintain inflation within target levels, balancing between stimulating growth and curbing excessive price increases.
Expected Economic Impact
The report outlines several potential impacts of the forecasted rate cuts:
- Stimulus to Economic Activity: Lower interest rates are anticipated to encourage borrowing and investment, providing a much-needed boost to economic activity. This could help counteract the slowdown and foster a more robust economic environment.
- Market Reactions: Financial markets are likely to respond to the prospect of rate cuts with increased optimism. Lower rates generally support higher asset prices, benefiting both equity and bond markets.
- Consumer Behavior: Reduced borrowing costs could spur consumer spending on big-ticket items such as homes and cars, further stimulating economic growth.
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