US Fed rate cut unlikely in June as US inflation hots up. What this means for Indian investors and what should they do?
US inflation beats Wall Street estimates, rises 0.4% in March; Fed's June rate cut hopes fade away The US CPI data for March marked the biggest gain in six months (since September 2023). Also Read: Fed rate cuts are now a matter of if, not just when The hotter-than-expected US inflation print for March has dealt a serious blow to hopes of Fed rate cuts in June. Experts underscore that US Fed swap markets are discounting the possibility of only two rate cuts this year, compared to the six rate cuts expected at the beginning of the year and three rate cut expectations in March.
"This year began with market expectation of six rate cuts. Now the expectation has come down to a maximum of three, perhaps two. Even now a total of 50bp rate cut is possible this year and these will be backloaded," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Moreover, with the US economy remaining strong, the Fed has no compulsion to cut rates in June. As Reuters reported, the CME's FedWatch tool now indicates the expectations of Fed rate cuts in June have declined to 17 per cent. "Traders now see the likelihood of an interest rate cut at the September meeting, with a 66 per cent probability, based on prices of rate futures," Reuters reported.
Also Read: US Fed minutes reveal slice in treasury securities from the balance sheet runoff As per Madhavi Arora, Lead Economist at Emkay Global Financial Services, the chances of a rate cut in June may be gone now. "The US June cut looks to be a shut case, but the Fed may still be motivated to guide towards cuts this year to engineer a soft landing. They are also still trying to fathom the growth resilience despite massive and super quick 525bp rate hikes and fearing a
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