Where Will the US Interest Rate Cut Go After the Release of PPI and CPI Inflation Data?
The prospect of a Federal Reserve (Fed) interest rate cut has strengthened after the release of producer price (PPI) and consumer price (CPI) inflation data this week showed a moderate trend. Although inflation remains above the 2% target, weakness in the labor market and an unexpected decline in the PPI have strengthened expectations that the US central bank will soon cut interest rates.
Several analysts predict that the rate cut will begin at its meeting on September 16-17. Reuters reports that the bond market has priced in a 25 basis point (bps) cut as almost certain. Where Will the US Interest Rate Cut Go After the Release of PPI and CPI Inflation Data?
The prospect of a Federal Reserve (Fed) interest rate cut has strengthened after the release of producer price (PPI) and consumer price (CPI) inflation data this week showed a moderate trend. Although inflation remains above the 2% target, weakness in the labor market and an unexpected decline in the PPI have strengthened expectations that the US central bank will soon cut interest rates.
Several analysts predict that the rate cut will begin at its September 16-17 meeting. Reuters reports that the bond market has been priced in a 25 basis point (bps) cut as almost certain. Bank of America sees two rate cuts this year, while Barclays is more aggressive, projecting three consecutive cuts in September, October, and December.
However, most economists believe the Fed will not rush into making major moves. Analysts from Morgan Stanley and Goldman Sachs emphasize that a small cut is more likely, unless future inflation data shows a much sharper weakening. Remaining high core inflation is also a restraining factor against overly aggressive measures.
If the Fed does cut interest rates, the impact is expected to weaken the US dollar as yields fall, while simultaneously driving up the prices of gold and silver as non-interest-bearing hedge assets. Meanwhile, crude oil has the potential to strengthen as lower borrowing costs could improve the outlook for global energy demand, although concerns about oversupply from OPEC+ and the IEA's surplus projection remain overshadowed.
Given these conditions, the global market is now awaiting the Fed's official decision at this month's meeting. The most likely scenario is a mild 25 basis point rate cut, which could be followed by a similar move in the fourth quarter, as the Fed seeks to maintain a balance between suppressing inflation and supporting economic growth.
Source: Newsmaker.id.
