“At this point, you should probably take the committee and chair at face value — their best guess right now is still three cuts this year,” Bullard told Bloomberg TV in an interview. “That’s the base case.”
Speaking from the sidelines of HSBC’s Global Investment Summit in Hong Kong, Bullard said “a lot of things going right for the Fed right now” and the worlds largest economy is witnessing “a very successful policy with a pretty strong economy”.
Bullard justified the potential for rate cuts based on existing economic data. Known for his contrarian viewpoints, Bullard previously advocated for aggressive policy measures to address accelerating inflation during his time at the St. Louis Fed.
In contrast, futures traders have tempered their expectations for rate cuts, with data from LSEG indicating a reduction in bets compared to earlier in the year.
On Monday, futures contracts for Fed funds in December indicated an anticipation of approximately 60 basis points in rate reductions for the year, a notable decrease from the earlier projection of about 150 basis points at the beginning of 2024. According to data from the CME Group, the likelihood of a 25 basis point initial cut in June declined to 49%, contrasting with the 57% figure from the previous week.Federal Reserve Chair Jerome Powell last week reiterated the central bank has time to deliberate over rate cut, citing the strength of the economy and recent inflation readings. While Fed officials reached a consensus in their March meeting regarding the potential for rate reductions, Powell stressed on the need for prudence and further evidence of sustained inflation easing.Investor sentiment also shifted following a robust March payrolls report, with increased speculation that two rate cuts are more likely than three this year. This adjustment in expectations has led to shifts in Treasury yields and swap contracts, reflecting evolving market dynamics.
With inflationary pressures holding firm and the labor market remaining solid, some officials, such as Minneapolis Fed President Neel Kashkari, have suggested that rate cuts may not be necessary if inflation maintains its current trajectory.