Markets have been so obsessed for the past six months on when the Federal Reserve will make its first cut in interest rates, no-one has even considered thinking the unthinkable: what if it doesn’t cut at all in 2024?
Until around a month ago, you could still take odds at around 3/1 that the first cut would come in March. Now almost certainly off the table, May or June come into focus for the first downward move.
But a sticky consumer price inflation number for January and stronger-than-expected labor market data, followed by hawkish Fed comments at the last Open Market Committee meeting, have led some to push expectations back to the July meeting.
And what if between now and then, the inflation data begin to show further stickiness. There are plenty of outliers that haven’t yet been seen in the official data.
Supply Chain And Wage Growth Risks
Outliers such as the impact of longer lead times and higher shipping costs on goods and raw materials because of longer shipping routes as freight avoids the Red Sea.
“Red Sea tensions have started to impact freight costs, which could lead to more general supply-chain pressures that were a major cause of the inflation surge in 2022,” said Jeremy De Pessemier, strategist at the World Gold Council.
Wage inflation could also present an outlier risk as the labor market remains tight, with strong levels of job creation and low levels of layoffs continuing into what was supposed to be the latter part of the current business cycle.
“If labor demand remains strong on the back of strong …
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