The Federal Reserve’s recent meeting highlighted its cautious approach amid increasing inflation concerns and a potential slowdown in economic growth. However, Macquarie strategists believe that the ongoing trend of disinflation could compel the Fed to adopt a more dovish stance during its upcoming meeting in June, hinting at the possibility of a rate cut later this year. Macquarie expects the Fed to deliver a more dovish message on June 17 compared to the tone set in May.
They have observed a recent decline in U.S. inflation and indications of a weakening labor market, which strengthen the case for a rate cut in 2025. Although job openings appeared to improve modestly, other indicators—including a weak ADP report and decreasing private-sector quit rates—suggest that the labor market is losing momentum. The strategists noted the paradox between the report of job openings and conflicting signals from regional surveys and consumer confidence regarding job security.
Moreover, Macquarie cautions against putting too much emphasis on the JOLTS report, which may not accurately reflect upcoming trends in the labor market. For the Fed, the unemployment rate remains a crucial factor influencing its rate decisions, and a rise above the recent 4.1%-4.2% range could be significant. Regarding inflation, Macquarie points out that recent data indicates a disinflationary trend in the U.S. economy.
They anticipate that by the time of the June 18 Federal Open Market Committee meeting, the Fed’s hesitance to cut interest rates could diminish as underlying price trends continue to show signs of disinflation. Additionally, tighter credit conditions, driven by banks tightening lending terms, further complicate the economic landscape.