Investors hoping for Federal Reserve interest rate cuts are instead hearing a growing chorus of voices urging patience. Several Fed officials, including Loretta Mester, John Williams, and Thomas Barkin, have emphasized the need to keep borrowing costs elevated for a longer period, as they wait for clearer signs that inflation is easing. They caution that it may take more time to achieve the central bank’s 2% inflation target.
Across the Atlantic, European Central Bank (ECB) Executive Board member Isabel Schnabel echoed a similar sentiment, advising against consecutive rate cuts in June and July. This cautious stance is reflected in the repricing of Federal Reserve rate cut expectations in the swaps market. Following Wednesday’s consumer price index data, traders initially increased their expectations from one to two cuts in 2024. However, those bets were scaled back on Thursday, with only one cut now fully priced in for this year.
Commodities markets were broadly higher. West Texas Intermediate crude continued its upward trajectory early Friday, marking a potential third consecutive day of gains. Meanwhile, gold remained relatively stable after a decline on Thursday.
As the week concludes, the persistent message from the Fed is clear: patience is paramount in the fight against inflation, and any moves to reduce rates will be carefully deliberated.