KUALA LUMPUR: The Federal Reserve (Fed) is expected by the markets to keep interest rates steady in March.
The expectation of a rate cut by the Federal Reserve anytime soon is dashed by stronger data, according to Daniela Hathorn, senior market analyst at Capital.com.
"In all honesty, for a central bank that admitted they were too slow in hiking rates when the cycle first started, which allowed inflation to get too high, I find it hard to believe that the Fed is going to start cutting at the first chance they get.
"This is even if Fed chair Jerome Powell's comments have been slightly misleading in the past," she said in a statement today.
As such, Hathorn said we will likely have to wait for the second half of the year for the Fed to start cutting. However, the issue isn't so much whether the bank will cut rates this year, as that is almost certain at this point, but rather how many rate cuts there will be.
She noted that the year started with 150 basis points (bps) of cuts being priced in.
"That has now dropped to 96 bps—or just under four 25 bps cuts.
"But it's likely to continue dropping over the coming months, getting closer to something like two cuts, three at most, and that is assuming that economic data really worsens from here on out," she added.
Meanwhile, Hathorn also said US equities have pulled back from their recent highs as the higher consumer price index (CPI) reading pushes back on some of the risk appetite driving stocks higher in recent weeks.
She noted that there doesn't seem to be as much of an inverse correlation between strong economic data and stocks as there has been in the past few months, which suggests the pullback could be limited.
"That said, equity indices were looking very overbought in recent sessions, so the pullback is likely neither unexpected nor unwelcome.
"The S&P 500 is shying away from the 5,000 mark, but the ascending trendline in the relative strength index (RSI) suggests short-term support is likely to arise," she said.
