Damon

Since the onset of the Russo-Ukrainian War in 2022, inflation in major global economies has peaked successively, with a recent downturn observed. Subsequent inflationary trends still require close attention, particularly regarding energy prices and housing inflation.

It seems that interest rates have peaked in the current hiking cycle. Some countries, such as Switzerland, have even started lowering interest rates. But will inflation reverse?

The Fed maintained the expectation of three rate cuts this year in the interest rate meeting last month. However, economic resilience, price pressures, and statements from Fed officials have made the prospects for easing less clear. Therefore, the latest inflation report will become an important reference for whether an inflection point of the Fed policy is coming in the first half of the year.

Currently, various sectors are influenced by expectations of interest rate cuts, with nonfarm payrolls playing a crucial role in shaping those expectations. Amidst recent hawkish remarks from Fed officials which continued to dampen rate-cut expectations, any data indicating a decline in inflation or evidence of weakness in economic activity or the labor market will enhance expectations of rate cuts.

Disinflationary progress should lead to a rate cut by the Fed around the middle of the year. As the economy slows further, the Fed should eventually cut rates more than the market is currently pricing in. Core PCE inflation is expected to slow further below 2.5% in the coming months.

Recently, the five major central banks worldwide have updated their monetary policies. The Bank of Japan ended negative interest rates, the Swiss National Bank cut rates, while the Federal Reserve, European Central Bank, and Bank of England hinted at possible rate cuts in the future.

From the second half of 2024, the economic growth gap between the US and Europe will gradually narrow. Europe's economic growth is expected to accelerate, thanks to the recovery of consumer confidence and external demand. In the US, the reduction in fiscal policy support will further weigh on economic growth.

As long as two FOMC officials are more hawkish than they were in December, the expected number of rate cuts this year will be reduced to two. Combined with the current situation, if the number of interest rate cuts is still maintained three times, it is bullish. However, if it is reduced, it is bearish.

Since the beginning of the current cycle of interest rate hikes and cuts, Fed officials have expressed their views on various occasions.

This CPI inflation has been driven almost by rent costs and services such as shelter, medical care, and transportation. June is still seen as the most likely point for a rate cut.