PGIM Fixed Income: Start of Fed rate cut cycle is getting closer

30 juli 2024

Rente Fed

Tom Porcelli, Chief U.S. Economist at PGIM Fixed Income, looks ahead to the Fed's interest rate decision next Wednesday.

While y/y base effects may keep U.S. inflation above the Fed’s 2% target in the months ahead, Powell and others have explained that shouldn’t prevent them from cutting rates. Further, Powell has signaled that if the Fed waits until y/y inflation hits the 2% target, they’d be moving too slow.

In that regard, their attention has shifted away from inflation towards the easing labor market as cyclical hiring has slowed over the last several months now. Therefore, as long as the inflation data behave, we expect the Fed to initiate a cut as soon as the September meeting, and we think at the meeting this week (on Wed 7/31), the Fed will flag as much.

After that, we easily see another cut at the December meeting and in fact, we would not discount a cut even in November. Stated differently, after the July meeting, we think the final three meetings for the year (Sep, Nov and Dec) are all in play. If the Fed is hindered from cutting rates this year, it could shift those cuts into 2025, and in our modal scenario we expect a cumulative total of about 150 bps in rate cuts through YE25.