The Zhitong Finance App learned that Salman Ahmed, head of Fidelity International's Global Macro and Strategic Asset Allocation Department, wrote that the Federal Reserve's goal is still to cut interest rates three times this year, but there are initial signs that the Fed will have to accept higher inflation than previously anticipated, and even be forced to postpone interest rate cuts. Despite an unexpected improvement in inflation over the past two or three months, the Federal Reserve still wants to cut interest rates, and he believes it has already reiterated that if it can actually cut interest rates, June will be the time to start the interest rate reduction cycle.

First, although the Federal Reserve kept three interest rate cuts in the 2024 bitmap, the expected interest rate bitmap for 2025 changed. Inflation is unexpectedly high. Since October of last year, inflation in core services has remained unchanged and has remained above target levels. However, the Federal Reserve still indicated that it is likely to start a cycle of cutting interest rates in June.

Second, the Federal Reserve's long-term forecast for interest rates was slightly raised from 2.5% to 2.6%. Although the increase is very small, this is the first time that the Federal Reserve raised its neutral interest rate forecast during this cycle, and it is also a point that needs attention in the future. Given that the US economy remains strong, if the Federal Reserve's view on the neutral interest rate R* begins to change, it means that the inflation rate and interest rate may eventually be higher than the previous level.

Fidelity International has long believed that the average inflation rate in the next ten years will reach 3%. The sharp rise in inflation in 2021 is not a short-term phenomenon; there are many reasons why inflation will continue to be high to some extent, including the impact of globalization (albeit slowly), decarbonization, and defense spending. The world is currently facing two wars, and these conflicts may have a profound impact in the next few years. Although central banks will not acknowledge it, they will tolerate higher inflation in the future. Inflation is far from reaching the target level, and the Federal Reserve is still unwilling to cut interest rates immediately, which means it is tolerating inflation exceeding the target level.

On the other hand, the financial market expects interest rates to fall, and the market is eager for the Federal Reserve to immediately fulfill its promise to cut interest rates.

The US will still release three rounds of data until June, which explains why the Federal Reserve doesn't want to mess up the spring water too soon. In fact, there are good reasons to support inflation or it will continue. In this battle against inflation, getting ahead of the curve is the biggest problem. Development over the next two to three months is the key. It is not ruled out that any data released before June may prevent the Federal Reserve from cutting interest rates, which will have an impact on the market.

Since October of last year, Fidelity International has been inclined to take risks. It is believed that the economy will first make a soft landing, keeping the stock market optimistic until the first half of this year. However, things have changed. The market has fully accepted the idea of a soft landing in the economy. We are currently facing the risk of “not landing,” that is, the market's expectations are no longer interest rate cuts, and may even shift to some degree of interest rate hike.

There is still some distance from this outcome. The bank has also always believed that the economy will eventually fall into recession, and the risk is that if the inflation data remains high, the market will be forced to re-evaluate and deploy. If interest rates are not cut, interest rates will remain high for a longer period of time, so the bank's analysis of the recession and when it declined last year will need to be reversed and instead assessed what impact long-term high real interest rates will have.