Brokerages adjust forecasts for Fed rate cuts after March CPI data

Following a higher-than-anticipated increase in March consumer prices, several global brokerages have revised their expectations of the US Federal Reserve initiating interest rate cuts. The adjustments come amidst concerns raised by the latest Consumer Price Index (CPI) report, which revealed a 0.4 per cent rise last month and a 3.5 per cent increase on an annual basis, surpassing economists' forecasts.

In light of the robust March CPI data, brokerages such as Barclays, UBS Global Wealth Management, TD Securities, and Wells Fargo have postponed their projections of the first rate cut to September. Conversely, Goldman Sachs, BNP Paribas, and Jefferies have brought forward their forecasts to July from June.

The CME FedWatch tool indicates a significant shift in market sentiment, with the probability of a rate cut in June dropping to 11.5 per cent from 50 per cent prior to the release of the CPI data. Meanwhile, expectations for rate cuts in July and September are now at 31.6 per cent and 61.7 per cent, respectively.

Here's an overview of the latest forecasts from major brokerages following the March CPI data:

• Goldman Sachs: Predicts the first rate cut in July, with a total of 2 cuts expected in 2024.
• Barclays: Forecasts the first rate cut in September, with one cut anticipated in 2024.
• UBS Global Wealth Management: Expects the first rate cut in September, projecting a total of 2 cuts in 2024.
• TD Securities: Anticipates the first rate cut in September, with 2 cuts forecasted for 2024.
• Wells Fargo: Projects the first rate cut in September, with 3 cuts expected in 2024.

Prior to the release of the March CPI data, brokerages had different outlooks, with many predicting rate cuts as early as June. However, the unexpected inflationary pressure has led to a reassessment of the timing and extent of potential rate cuts by the Federal Reserve.

(With Reuters inputs)