– The Fed is expected to issue its first rate cut in June
– Inflation is slowing based on recent indicators, such as the PCE index and consumer inflation expectations
– Markets are only pricing in a 55% chance of a rate cut this year, with just 57% of investors expecting the first cut in June
Tom Lee, head of research at Fundstrat, predicts that the Fed will issue its first rate cut in June due to slowing inflation. He pointed to indicators such as the PCE index and consumer inflation expectations as evidence that prices in the economy are cooling. In France, inflation dropped from 0.9% to 0.2% in March, indicating that inflation could be lower across most economies.
Market expectations suggest a 55% chance that the Fed could cut rates by 75 basis points or more this year, down from 85% a month ago, with only 57% of investors expecting the first rate cut in June. However, Lee believes the Fed could cut rates sooner than expected, which could be good news for stocks. He predicts that inflation will continue to decrease.
While some economists have warned that inflation risks may remain high due to lingering price pressures in the economy, others believe that the Fed should wait before cutting rates. Mohamed El-Erian, a top economist, recently cautioned that the underlying inflation rate associated with a strong economy may have increased in recent years. Lee remains confident that inflation will continue to decline.