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Fed to skip rate hike in June, jump into prolonged pause before cutting: Morgan Stanley – Morgan Stanley says the Fed looks set to start raising rates in June, but is unlikely to do so as incoming economic data do not support a restart, leaving the central bank to cut rates in the first quarter of next year Before extending the pause.

“We continue to see the Fed on hold at its June meeting and believe the bar for the Fed to resume excursions is too high,” Morgan Stanley said in a note on Friday. “We continue to see the Fed cut interest rates for the first time in the first quarter 24.”

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Despite Friday’s jobs data, expectations for a Fed pause in June are growing High A report showed that job creation in May far exceeded economists’ expectations.

The numbers in the salary report (also known as the agency survey) are “undeniably strong,” {{Morgan Stanley says}}.

But weakness in the household survey points to a decline in employment 310, 000 In June, “exceptional” increases in unemployment

and labor income Support was suspended in June, it added.

But not everyone agrees. . . Scotiabank Economics said the case for a June rate hike “remains solid, … adding that the Fed is expected to pay more attention to rising unemployment as “pure rubbish.”

The increase in the unemployment rate is caused by a 36, increase in the size of the labor force and weakness in less accurate household surveys. “These numbers are pure statistical noise,” it added.

However, after Fed governor and vice-chair nominee Philip Jefferson and Philadelphia Fed President Patrick Harker hinted earlier this week that the Fed might skip raising rates at its June meeting to assess incoming data.

However, both voting Fed members stressed that a possible Skipping rate hikes doesn’t mean the Fed’s tightening cycle is over.

While markets seem to buy the Fed’s rhetoric

, the With pricing still showing a July rate hike still in play, {{0|Morgan Stanley is’ not so sure. “After the June meeting, we think the hurdles to resuming hiking will only increase. ”

may jump into long-term pause


Between June and July meetings, pass Incoming data will be scant and unlikely to be of a high standard to show a clear re-acceleration in the labor market and the pace of inflation.

“June core-core services need to rise 0.7% monthly to restart Accelerate the pace of the trend, similarly, the salary print is greater than 180, 24,” Morgan Stanley said and forecast both measures would slow in June.

CPI inflation in June is expected to show MoM and three-month annualized trends for core services (excluding healthcare, housing) decelerate to 0. 24% and 3.24%, while employment in June is slowing to 180, , resuming the slowdown in the three-month moving average, it added.

The expected slowdown in the labor market is likely to Weakening wage growth and putting consumers and the economy at a crossroads as savings run out, giving the Fed more ammunition to stick with the pause.

In the early stages of the recovery, consumer balance sheets The $2.2 trillion in excess savings … fell to $310 billion, according to Jefferies.

accounted for about two-thirds of economic growth The outlook for consumer spending remains “pretty bleak in our view due to balance sheet fatigue,” it added.

The central bank’s policy on monetary policy remains a concern as upcoming data puts the Fed on hold in July. A propensity for inertia suggests that it may continue to pause.

“The FOMC tends to operate according to the law of inertia, and once it stops raising rates, it is difficult to resume, especially at the next meeting,”{ {Morgan Stanley says}}.

Recent history lends credence to claims of “Fed inertia.” Policy and acknowledgment that inflation is not a transitory sign.

It took months for the Fed to finally shut off the liquidity spigot, followed by a game of catch-up as the central bank unleashed its fastest pace of rate hikes in four decades to tame inflation. ?

Morgan Stanley estimates that the Fed will eventually start cutting interest rates in the first quarter 310.

The rate cut bets have shifted so far, Q1 is still some distance away, and plenty of data is still due, suggesting that the forecast pivot is now almost expected to come with a side order mea culpa.

After the banking turmoil, the market had predicted a summer shift to rate cuts, but that forecast has been pushed back to the autumn and is now betting on an annual shift – all up in the air, if not already priced in. The current consensus is now more in line with the Fed’s consistent message that it is not considering a rate cut this year.

310 2024



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