Webinar: What if… The Fed cuts rates by next summer?
At a Glance
The desk is framing a scenario where the Federal Reserve may not follow through with an anticipated rate hike due this September, and could even undertake rate cuts by mid-2024. Per the full note , the expectation of a rate hike conflicts with potential economic indicators such as inflation trends that could shift market consensus. This contrasts with the view from firms like **jpmorgan** which anchors their predictions around a mildly bullish USD outlook through to early 2027, suggesting a levels target around 1.075 for EUR/USD.
Key Takeaways
Full Analysis
What the desk is arguing
The central argument posits that financial markets might be mispricing future rate actions from the Federal Reserve. The expected hike could pivot if inflation metrics don't play out as anticipated and labor market dynamics reveal contrary strength, leading to a potential cut scenario by summer next year.
The insight provided by ING stresses the importance of upcoming economic data releases, including employment figures that could reshape Fed policy expectations. The volatility around such pivotal data points suggests that traders should remain vigilant and responsive to emerging trends.
Where it sits in our coverage
Currently, our target for EUR/USD is set at 1.075, with a range from 1.04 to 1.12. Significant targets around this currency pair include those from: - jpmorgan: 1.10 by Mar-26 - bofa: 1.04 by Mar-26
This perspective aligns closely with jpmorgan, indicating our stance sits near their forecasted target, while showing some divergence from bofa, which projects a more bearish range.
How other firms see it
Analysts at jpmorgan and others present a more optimistic view for a strong dollar based on anticipated Fed actions lending support to their targets. Conversely, bofa's bearish approach, projecting a lower target, highlights concerns over potential economic softening and declining inflation.
Watch for the interplay between USD and inflation readings, as well as Fed commentary that could reshape expectations linked to EUR/USD trajectories in the near future.
Market Implications
Traders should closely monitor the upcoming employment report which may influence the Fed's rate decision amid shifting inflation concerns. A break below 1.05 in EUR/USD may signal market recalibration towards more hawkish Fed sentiment, while movements above 1.10 could reinforce projections for a steadier dollar.
From the original
Articles Webinar: What if… The Fed cuts rates by next summer? Published 07:54 United States Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Financial markets are expecting a Federal Reserve rate hike to come as soon as September. But what if investors
Related speeches
4 itemsTHINK Ahead: The case for rate cuts
The desk is positioning for potential rate cuts to re-enter the conversation sooner than expected. Per the full note from James Smith, the consensus among market participants seemingly discounts the prospect of easing until 2028; however, the desk believes this view underestimates the shifting economic indicators across the US, Europe, and the UK. With inflation remaining elevated at 4% and labor market recovery showing signs of faltering, there could be room for the Federal Reserve to pivot back to an easing policy next year. This contrasts with our internal coverage which suggests a focus on rate stability rather than cuts in the near horizon.
US Money Markets: Value in extensions given the aggressive Fed discount
The desk believes the current valuation of US money markets is overly aggressive, particularly given the Federal Reserve's recent actions. Per the full note from ing-think, the expectation of prolonged elevated interest rates seems exaggerated, creating value for extensions in tenors from nine months to two years. Additionally, the desk notes that the Fed's 25 basis point hike in September has further solidified rate hike pricing, with markets projecting potential cuts only in 2027 and 2028, contrary to market sentiment. While our consensus on EUR/USD stands at 1.1700, we will need to monitor upcoming economic indicators carefully as traders realign their expectations on monetary policy tightening.