Atlanta Fed President Raphael Bostic said at the Atlanta Business Chronicle 2024 Economic Outlook Luncheon that the timing of an interest rate cut is more likely to be in the third quarter, which suppressed market expectations that the Fed will cut interest rates early. expectations. Many Fed officials, including Cleveland Fed President Loretta Mester, also said that the idea of cutting interest rates in March may be too early. The hawkish remarks of many officials and December retail sales data indicating a strong U.S. economy have reduced market expectations for a March interest rate cut from 71% to 48%. The U.S. dollar index once pushed up to 103.70, setting a new intraday high since December 13 last year for two consecutive days. It has risen nearly 2% so far this year, marking the best start to the year since 2015. Under the gloom of the dollar, U.S. stocks and bonds suffered double losses, precious metals fell collectively, and gold prices hit a one-month low. All three major U.S. stock indexes ended lower, with the S&P 500 and Nasdaq Composite falling more than 1% at one point. Gold fell 1.1% to $2,005.71 an ounce, its lowest level since December 12 last year. Silver and platinum both fell more than 1%. Gold prices are expected to come under heavy pressure as expectations of a rate cut in March fade.

Since January, market expectations for the Federal Reserve to cut interest rates in March have been suppressed continuously. First, Fed officials collectively expressed hawkishness, and then the data released a signal that the economy is still strong. The U.S. inflation rate in 2023 unexpectedly rose to 3.4% in December from 3.1% in November. Retail sales increased by 0.6% month-on-month in December, the largest increase in three months, exceeding Wall Street's consensus expectations. That means inflationary pressures will persist for longer, and comes as policymakers make a concerted effort to pin market expectations for a first rate cut before mid-year and warn markets that the pace of cuts will be slower than expected. Waller, the governor of the Federal Reserve, said there should be no rush to cut interest rates until it is clear that inflation will continue to decline. In January, New York Fed President Williams said that the Fed would only cut interest rates if it was confident that inflation would return significantly to its 2% target. Even Richmond Fed President Barkin and Chicago Fed President Goolsby hinted that the evidence that the inflation rate continues to fall to the central bank's target is not sufficient.

At the same time, media surveys show that economists expect the possibility of a U.S. economic recession to drop significantly this year, from 48% in October 2023 to 39%. The latest Federal Reserve Yellow Book of Economic Activity shows that compared with the previous survey cycle, economic growth in most regions of the United States has barely changed, but it has released a signal that the economy continues to slow down, and the labor market in almost all regions is cooling.

The latest Yellow Book of Economic Activity from the Federal Reserve shows that compared with the previous survey cycle, economic growth in most regions of the United States has barely changed, but it has released a signal that the economy continues to slow down, and the labor market in almost all regions is cooling. So far, the market has significantly reduced expectations for an interest rate cut in March. However, according to relevant data, the money market is betting that there is still room for nearly 70 basis points of interest rate cuts in the first half of 2024. The U.S. economy is still uncertain and a cautious approach must be adopted.
 

Market Outlook:

1) U.S. stocks: The environment for the stock market is relatively good. The S&P 500 index has once again hit a record high. Although the rising momentum of the stock market has weakened, the stock market is expected to continue to improve.
2) U.S. Treasuries: The market currently believes that the possibility of an interest rate cut in March has dropped below 50%. U.S. bond interest rates may still have room to adjust upward. At the same time, attention needs to be paid to the impact of U.S. data releases.
3) Gold: The hawkish shift in U.S. monetary policy caused gold prices to fall, while strong physical demand in the Asian market continued to support the precious metals market, and the gold market consolidated in a narrow range.