Market 'underappreciates' that the Fed will cut rates for one reason or another

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Market 'underappreciates' that the Fed will cut rates for one reason or another - Citi

According to a recent research note from Citi analysts, the market is potentially overlooking the Federal Reserve's inclination to reduce interest rates in the near future, citing reasons related to inflation and economic activity. The note highlights Chairman Powell and the Federal Open Market Committee's eagerness to initiate a downward adjustment in policy rates, despite their outward lack of urgency.

Chairman Powell recently indicated that core Personal Consumption Expenditures inflation persisting at 2.8% year-over-year in March could warrant a delay in rate reductions. However, Citi's projections diverge, anticipating core PCE inflation to be slightly lower at 2.7% YoY by the end of the month. Furthermore, they foresee a potential decline to 2.6% YoY in April, with this data release falling after the May FOMC meeting but before June.

This perspective underscores ongoing uncertainties in the macroeconomic environment and highlights the Federal Reserve's proactive stance in responding to potential economic headwinds. The market's interpretation of future rate movements, as per Citi's analysis, may underestimate the Fed's willingness to act decisively based on incoming economic data.

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