Global Investment Banks Predict U.S. Interest Rates to Hold Steady This Year

Most major global investment banks anticipate the U.S. Federal Reserve will maintain its current interest rates through the end of the year, according to a report from the Bank of Korea's New York office. Of ten surveyed institutions, six, including Barclays, Goldman Sachs, and Morgan Stanley, predicted a "hold" on rates. Citibank alone forecasted a rate cut.

However, three banks, Bank of America, JP Morgan, and Deutsche Bank, projected a rate increase. Notably, JP Morgan shifted its forecast for a U.S. rate hike from September of next year to December of this year. This adjustment is attributed to growing pressure from Federal Open Market Committee (FOMC) members to raise rates further to combat inflation.

The Federal Reserve's decision in July to pause rate hikes was seen as a dovish signal by many, as Chair Jerome Powell did not explicitly commit to further increases. The current U.S. policy rate stands between 3.50% and 3.75%, higher than South Korea's rate of 2.75%. The next FOMC meeting is scheduled for September, following South Korea's Monetary Policy Committee meeting on August 27th, which could be influenced by U.S. rate trends.

Market expectations for a U.S. rate hike this year have slightly decreased, currently reflecting about 1.1 hikes as of August 7th, down from 1.2 hikes on July 6th. Despite this, projections for the policy rate level in June of next year have risen slightly to 4.05% from 3.97% in July. Investment banks acknowledge the reduced likelihood of a rate hike but foresee heightened vigilance on inflation due to dissenting opinions within the Fed, where three out of twelve members favored a 0.25% increase at the July meeting.

Economically, the U.S. shows positive growth, with Q2 GDP at 1.5% and robust private spending. However, the labor market has weakened, evidenced by a larger-than-expected drop in non-farm payrolls in July, which has contributed to lowering the probability of a rate hike. Inflation remains above the Fed's 2% target, with June's Personal Consumption Expenditures (PCE) and Consumer Price Index (CPI) at 3.7% and 3.5% year-on-year, respectively.

“

Investment banks are assessing the possibility of a Fed rate hike as reduced, but they predict heightened vigilance on inflation reflecting the minority opinions on rate hikes.