On Thursday, JPMorgan (NYSE:JPM) economists revised their expectations for the Federal Reserve's interest rate cuts, predicting an earlier start following the release of the latest Consumer Price Index (CPI) data.
The June CPI report indicated a decrease in the headline figure by 0.06%, contrary to the anticipated 0.1% increase. Moreover, the core figure, which excludes volatile food and energy prices, saw a modest rise of 0.06%, below the expected 0.2% rise.
The report also highlighted a slowdown in the inflation of tenants' and owners' equivalent rent, with monthly increases dropping to around 0.3% after consistently being around 0.4% in the previous six months. Core services excluding rents experienced a 0.05% decline, marking the second consecutive month of decreases. Furthermore, prices for core goods fell by 0.1%.
The economists now believe that these figures could prompt the Federal Reserve to initiate a rate cut as early as September, a change from their previous forecast of November. They anticipate that subsequent cuts could occur quarterly. The JPMorgan team suggests that if the labor market continues to cool, the risk of more frequent cuts after the initial reduction could be higher than currently expected.
The economists also noted that if the "immaculate disinflation signal" observed in the morning's jobless claims data continues, the Federal Reserve could afford a more gradual approach to returning to neutral interest rates. This assessment follows Federal Reserve Chairman Jerome Powell's description of the current economic situation as "good news," and his emphasis on the significance of the first rate cut decision.
In other recent news, U.S. households have reached a record net worth of $161 trillion in the first quarter of 2024, largely due to rising equity prices and real estate values, according to a Federal Reserve report. BCA Research, on the other hand, anticipates a decline in the S&P 500 to 3750 amid a forthcoming recession, predicting a global economic slowdown towards the end of 2024 or the beginning of 2025.
Goldman Sachs (NYSE:GS) analysts express optimism about a strong earnings cycle and increased market confidence by the end of 2024. However, JPMorgan raises concerns about high U.S. stock valuations amid inflation fears and unrealistic consensus expectations for nearly 20% profit growth.
On the international front, Asian markets are buoyed by potential interest rate cuts by the U.S. Federal Reserve, which has boosted the MSCI's broadest index of Asia-Pacific shares outside Japan.
An economist at RBC (TSX:RY) indicated that the possibility of a Federal Reserve interest rate cut is increasing for September, following the latest Consumer Price Index (CPI) report. These are some of the recent developments in the financial markets.
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