Fed's 2024 rate cut path is 'hard to see': Economist

In the wake of the hotter-than-expected March CPI report, expectations for Federal Reserve rate cuts have started to shift. Deutsche Bank Senior US Economist Brett Ryan joins Yahoo Finance to share his outlook on the central bank's monetary policy path.

Ryan states that Wednesday's CPI data has forced the Fed's anticipated rate cut trajectory to go "out the door." He notes that the "window is somewhat small" for the Fed to gain enough confidence to justify a rate cut as soon as June or July. Given the Fed's data-dependent approach, Ryan says there is no "clear indication" that inflation is returning to the central bank's target. As a result, he believes it is "hard to see significant rate cuts this year."

While concerns are rising about the possibility of a rate hike replacing cut expectations, Ryan says, "The probabilities are still very much skewed toward cuts."

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This post was written by Angel Smith

Video Transcript

JOSH LIPTON: First guest says the Fed will likely need to see 0.2% core PCE prints over the next few months in order to deliver an initial rate cut in June. Joining us now is Brett Ryan, Deutsche Bank Senior US economist. Brett, it is great to have you on the show. Maybe just start big picture. Brett, I'm interested to get your take on that CPI print hotter than expected. What did you make of it Brett and how do you think-- what do you think the Fed made of it?

BRETT RYAN: Yeah, sure. Thank you, Josh. And as Jared said, I think the Fed woke up this morning and wasn't too happy with the inflation print. As they've laid out the story from the March summary of economic projections, they really needed to see 20 basis points for the next two prints on core PCE to justify starting that mid-cycle adjustment process without seeing a deterioration in the labor market or growth. That goes out the door with today's print and I think it's not just about, can they go June versus July.

The window was somewhat small to begin with because you're going to run into some difficult comps over the back half of the year in terms of year over year. And so I think from the Fed's perspective, if they're not able to go in June, July, then you have to start thinking about, can they go at all this year. Or at least some time at the end of the year like the November or December meetings. But without any-- without a clear indication of inflation moving back towards target, which today's data definitely do not speak to.

With absent a labor market shock or something else on the growth front, it's hard to see significant rate cuts this year.

JULIE HYMAN: And on the flip side Brett, you even have Larry Summers raising the Specter of another rate hike, do you think that is sort out of the realm of possibility here?

BRETT RYAN: I think the probabilities are still very much skewed towards cuts than hikes as the minutes showed this afternoon, the minutes from the March meeting. They were fairly confident that they'd reached the peak rate. I think it would take several more months of these type of data to bring the prospects of hikes back on the table. The Fed's not going to hike one more time. If they were going to hike, it would be for 50 basis points or more. And I think you would need about six months of bad inflation prints to justify that.