# Market Awaits Fed’s June Rate Cut Decision Amid Rising Caution

Despite growing expectations that the Federal Reserve (Fed) will initiate its first rate cut in June following this month’s Federal Open Market Committee (FOMC) meeting, market experts are sounding alarms that the timing and extent of the cut may fall short of expectations.

Last week, after the Fed signaled three rate cuts within the year, the probability of a June rate cut, as indicated by the CME Group’s FedWatch tool, surged to around 70%. Fed Chair Jerome Powell also downplayed higher-than-expected inflation indices for January and February, suggesting they were temporary anomalies amid an overall declining inflation trend. This sparked optimism on Wall Street, pushing the New York Stock Exchange to record highs.

However, with the upcoming release of the Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) index, most Wall Street experts caution against taking a June rate cut for granted, citing persistent uncertainties facing the Fed.

# Experts Highlight Growing Uncertainty

MarketWatch reported that post-March FOMC, the market appeared to be prematurely pricing in a rate cut, while experts suggested that a delay in cutting rates is more likely. J. Benson Durham, head of global policy and asset allocation at Piper Sandler, stated, “It’s too early to be confident about a June rate cut,” noting the significant volatility in U.S. economic data. He characterized the current economic outlook as the most uncertain since the 1970s.

Economists at Jefferies noted that within the Fed, there remains a significant faction advocating for higher rates to be maintained longer. They cited that seven out of the 19 Fed officials view the neutral rate above 3%, indicating that the current policy rate may not be restrictive enough for the economy.

Jeremy Schwartz, senior U.S. economist at Nomura, warned that Powell’s dismissal of recent high inflation figures could lead to more abrupt adjustments in monetary policy if inflation surprises to the upside again. Schwartz anticipates that the Fed will enact only two rate cuts this year, in July and December.

Ed Yardeni, founder of Yardeni Research, echoed this sentiment in an investor note last week, asserting that persistent inflation above the Fed’s 2.0% target would make a summer rate cut challenging, predicting the first cut to occur during the November FOMC meeting following the presidential election, with a second cut in December.

Former Bank of America chief global economist Ethan Harris indicated he wouldn’t be surprised if the Fed deferred a rate cut decision until July.

# February PCE Inflation Reading Key to Rate Cut Path

All eyes are now on the core PCE inflation data for February, set to be released on March 29. A higher-than-expected reading, similar to what was observed with the Consumer Price Index (CPI), could alter the rate cut narrative. According to The Wall Street Journal, February’s PCE is projected to rise by 0.4% from January, marking the steepest increase since September last year, with core PCE (excluding food and energy) expected to climb by 0.3% from the previous month, indicating the largest monthly rise in over a year.