BBH economists analyze the dollar's outlook following the Fed's dovish expectations.
Fed unlikely to cut rates by 75 basis points this year
For 2024, the new Fed funds rate projection still implies 75 basis points of rate cuts despite the higher GDP growth estimate (2.1% vs. 1.4%) and the PCE's higher core inflation forecast (2.6% vs. 2.4%). The combination of lower interest rates, stronger growth and higher core inflation bodes well for risk assets and is weighing on the USD.
In our view, the results of the Fed's March policy meeting are not dovish. First, the Fed has not indicated that it has increased its confidence that inflation will move sustainably toward 2%. Second, the median Fed funds rate forecast for 2025 and 2026 was raised by 25 basis points to 3.875% and 3.125%, while the longer-term funds rate forecast is approximately 6 basis points higher, to 2.6%. Third, the 2024 funds rate estimate was just one pigeon away from a shift toward the hard line.
More importantly, we doubt the Fed will cut rates by 75 basis points this year, in part because of the encouraging growth prospects for the US economy. Therefore, the decline of the USD is limited.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
