Federal Reserve Interest Rate Cut Possibility

Investing.com reports that a potential Federal Reserve interest rate cut could happen as soon as March, according to analysts at Morgan Stanley.

Earlier this week, softer underlying US inflation data was released. The core consumer price index (CPI), which excludes volatile items like food and fuel, increased by 0.2% month-on-month in December. This was less than the 0.3% rise economists were expecting.

The release of the data revived expectations for interest rate reductions by the Federal Reserve this year, although they were moderated by strong retail sales and a solid labor market.

Morgan Stanley analysts noted that the resilience in the labor market diminishes the likelihood of a dramatic shift in labor market conditions, which would be a catalyst for the Fed to resume cutting rates.

Continued easing inflation might keep a rate cut in play for March, as suggested by the slower-than-expected core CPI data. Their forecast for the core personal consumption expenditures (PCE) price index is now lower than before.

The analysts anticipate further improvements in core PCE inflation in January but warned that President-elect Donald Trump’s proposed import tariffs could hinder a March rate cut, especially if implemented quickly or set higher than expected.