ING reaffirms its forecast for the first Fed rate cut in September

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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ING maintains its forecast that the US Federal Reserve will hold off on any changes to its monetary policy in the near term, with the earliest possible rate cut expected in September.

“We still think 75 basis points is on the table. We’re a little bit more aggressive than the market, but not not hugely so,” said James Knightley, Chief International Economist at ING, in interview on CNBC-TV18.

“We need the data and it’s not just one or two months of data to be justifying record. We need to see three or four months. So that would mean, September is the earliest opportunity for a rate cut…but that rate hikes scenario does appear to have taken off the table,” he said.

Knightley pointed to robust recent economic data as a contributing factor to the stability in policy outlook.

Price increases over the last quarter were double the normal rate, and the strong job market added over 800,000 jobs in the first three months alone, coupled with sustained consumer spending, all supporting the case for a cautious approach to rate adjustments, he noted.

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It is important to wait for at least three consecutive months where core inflation increases by 0.2%. Instead, it has consistently been higher at 0.4% for the past three months.

The unemployment rate stands at 3.8%, but it needs to rise above 4%, potentially reaching around 4.2% by September, for the Fed to consider making a move at the Federal Open Market Committee (FOMC) meeting in September.

“What is more important for US inflation and keeping inflation sustained is what happens to wage pressures because in a service sector economy, the biggest cost input is the cost of labour and if the jobs market is weakening, wage pressures are becoming more subdued there is perhaps less risk of inflation staying high for a prolonged period into next year,” he noted.

Also Read | US Federal Reserve holds steady on interest rates, signals potential future cuts

For the entire interview, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow