BOK RHEE: TIMING FOR A RATE CUT IN THE U.S. PUSHED BACK…

According to a report published on MarketScreener on April 11, 2023, the timing for a rate cut in the United States, as predicted by BOK Economics, has been pushed back. The South Korean research firm had previously anticipated a rate reduction by the Federal Reserve (Fed) in the second quarter of 2023. However, recent economic data and the Fed's hawkish stance have led BOK Economics to revise their forecast.

The Fed, which sets monetary policy for the United States, has been focusing on reducing inflation, which has been persistently high. Inflation, as measured by the Consumer Price Index (CPI), reached a 14-year high of 7% in February 2023, far exceeding the Fed's 2% target. The central bank has responded by raising interest rates in an attempt to curb inflation.

The Fed raised the benchmark federal funds rate by 0.25 percentage point at its March 21-22 meeting, marking the first rate hike since 2018. In a statement following the decision, the Fed signaled that more rate hikes were on the horizon, stating that "ongoing increases in the inflation rate and further substantial progress toward the Committee's maximum employment goal are likely needed to justify a pause in rate increases."

BOK Economics now expects the Fed to raise rates by another 0.5 percentage point at its May meeting, followed by another 0.5 percentage point increase in July. This would mean that the federal funds rate would reach a range of 1.5% to 1.75% by the end of the third quarter of 2023.

Given the Fed's commitment to reducing inflation, it is unlikely that a rate cut will occur before the end of the year, according to BOK Economics. The research firm now predicts that the first rate cut will take place in the fourth quarter of 2023, assuming that inflation begins to decline and the labor market remains strong.

In summary, the timing for a rate cut in the United States has been pushed back due to the Fed's focus on reducing inflation and the recent economic data pointing to a stronger-than-expected labor market. BOK Economics now expects the first rate cut to occur in the fourth quarter of 2023.