Federal Reserve May Cut Interest Rates Three Times in 2024: Julius Baer

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Bloomberg Apr 29 04:41

Mark Matthews, head of Asia research at Julius Baer, explains why he sees three interest rate cuts by the Federal Reserve this year. He speaks on "Bloomberg Daybreak: Asia."

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Transcript

  • 00:00 Our next guest actually says the key risk facing markets is that the Fed needs to keep rates high for longer and for so long
  • 00:07 that it causes a recession.
  • 00:08 Mark Matthews is head of Asia researcher Julius Baer.
  • 00:11 And Mark,
  • 00:12 how much of A risk are you ascribing to that happening here that that we do actually enter recessionary or contraction environment for the US economy
  • 00:23 bell very low.
  • 00:25 So it is the key risk, but I don't think it will materialize and we are penciling in
  • 00:31 three rate cuts this year.
  • 00:33 But because the economy is so strong, they won't happen we think until
  • 00:38 the very end of the year
  • 00:40 And specifically the months we're looking for are
  • 00:43 September and November and December.
  • 00:48 And and what do you think will be happening in the US economy at that point
  • 00:52 to to
  • 00:53 necessitate those cuts?
  • 00:54 What data sets are you watching in particular, are you already seeing any sort of signal sort of building that we we do need to see rate cuts?
  • 01:04 I think the key thing will be the inflation reading.
  • 01:07 And
  • 01:08 as you know, the last mile has proved very challenging.
  • 01:11 We're kind of stuck at about 3 1/2 for the headline CPI.
  • 01:15 I think we'll probably be down around 3 by the end of the year, perhaps even South of that.
  • 01:22 If you look at the
  • 01:23 real time rental indices in the United States and factor in the big lag between those and when they appear
  • 01:31 in the CPI data,
  • 01:34 that would infer
  • 01:36 inflation rate of
  • 01:38 slightly less than 3% by the end of this year.
  • 01:41 And although the Fed says they want to,
  • 01:44 I think
  • 01:45 that's not particularly realistic.
  • 01:48 But that's what we're looking for, for inflation to come down a little bit more optically.
  • 01:52 It's not possible to cut
  • 01:54 with a headline CPI of 3 1/2 just now.
  • 01:59 Mark, I am
  • 02:00 really intrigued by this view of three, even if the three comes towards the end of the year because there has been so much
  • 02:06 stubbornness and resilience in a lot of the data sets, right, not just inflation for the
  • 02:11 US
  • 02:12 What is really going to change between now and then and do you think there is a risk to your forecast?
  • 02:21 Yes, there is certainly a risk.
  • 02:23 There's a risk that the inflation does stay very sticky and
  • 02:28 there are several components that are contributing to it beyond the
  • 02:34 shelter component, a
  • 02:35 whole bunch of smaller things, but you add them up and they are material like food outside of home
  • 02:41 auto insurance.
  • 02:43 So
  • 02:44 I I don't know it's a it's something we'll only be able to see at the time, but
  • 02:50 for now our assumption is that it will come down but not to 2%.