A Twist in Interest Rate Hike Predictions
In a bewildering turn of events, Goldman Sachs economists have taken an impulsive detour from their initial expectations of the U.S. Federal Reserve’s interest rate plans. They have abandoned their anticipation of a June rate hike, citing unforeseen cooling in consumer prices during March.
Goldman Sachs’ Revised Expectations: A Dance with Investor Sentiments
Originally, these economists prophesied back-to-back rate hikes in May and June. Now, the winds of change have blown them to foresee only a May hike. This shift aligns their divinations with other investors’ crystal balls.
CME Interest Rate Futures: Echoing the Change
CME interest rate futures, in a harmonious chorus, barely flinched in response to Wednesday’s inflation report. The majority of traders expect a 25 basis point rate hike in May, no hike in June, and a wild card of a potential rate cut in July.
The Root of the Revision: A Web of Factors
Goldman Sachs cites recent inflation data as being in line with its expectations, but points to a hazy horizon of tightened bank lending in response to the dramatic collapse of Silicon Valley Bank. Furthermore, whispers of hesitation from some Fed officials regarding the May hike add to the uncertainty.
BofA Global Research Chimes In: The Inflation Data Conundrum
In an independent client note, BofA Global Research contends that the March inflation data keeps the central bank on track for a May rate hike, albeit with some unexpected improvements. The Labor Department reports that headline and core CPI in March increased by 0.1% and 0.4% month-on-month, respectively. The year-over-year headline increase tallied at 5%, with a core measure increase of 5.6% after banishing the volatile food and energy prices from the equation.
