Despite inflation having slightly cooled in May, the Federal Reserve yesterday (June 13) held interest rates steady and indicated that it expects to cut rates only once this year—a departure from earlier estimates of three cuts—when it is confident that inflation is falling towards its target of 2 percent. “So far, the data have not given us that greater confidence,” said Fed Chair Jerome Powell during a news conference.
The current federal funds rate, which determines the interest rates of loans like mortgages and credit cards, is between 5.25 and 5.5 percent after a series of hikes in 2022 and 2023, marking its highest level in two decades.
Data from the Bureau of Labor Statistics, also released yesterday, indicated that inflation is gradually slowing down. Consumer prices were flat month-over-month in May and rose 3.3 percent from a year ago, down from 3.4 percent in April. Core inflation, which excludes volatile food and gas prices, rose 0.2 percent month-over-month and 3.4 percent from a year ago. While Powell admitted that “the most recent inflation readings have been more favorable than earlier in the year,” he maintained that more positive reports are required before the central bank acts.
The Fed’s stance on interest rates has been closely watched by prominent Wall Street executives eager for signals on economic growth. Here’s what bank CEOs and investment managers are saying about inflation and the potential for Fed cuts:
Jamie Dimon warns of more rate hikes and stagflation
Jamie Dimon, chairman and CEO of JPMorgan Chase (JPM) has reiterated a sober economic take in recent months. In May, he claimed that the Fed could potentially raise rates instead of lowering them. “Do I think that rates could go up a little bit? Yes I do. And if they do, is the world prepared for it? Not really,” he told CNBC.
Amid warnings of stubborn inflation, the banker also discussed the potential for “stagflation,” a combination of high inflation, slow economic growth and rising unemployment, as the worst possible outcome. “Could inflation be sticker than people think? I think the odds are higher than other people think.”
Dimon made similar comments in his annual shareholder letter in April, where he suggested that government spending could keep inflation and interest rates high and noted that JPMorgan was planning for interest rates as high as 8 percent or as low as 2 percent. “It is important to note that the economy is being fueled by large amounts of government deficit spending and past stimulus,” said Dimon in the letter, adding that this factor combined with “a growing need for increased spending as we continue transitioning to a greener economy, restructuring global supply chains, boosting military expenditure and battling rising healthcare costs” could “lead to stickier inflation and higher rates than markets expect.”
Larry Fink predicts two rate cuts in 2024
BlackRock (BLK) CEO Larry Fink has also warned of sticky inflation. While speaking to CNBC in April, the executive said it is unlikely that inflation rates will hit the Fed’s goal of 2 percent, describing it as “a hard number” to achieve. “Do I believe that we could get a stable inflation between 2.8 percent and 3 percent? I’d call it a day and a win,” he said.
Despite this stance, the CEO still noted that he thinks the central bank should cut rates this year—although he maintains a more conservative position than other observers. “While everybody said we’re going to have six cuts earlier this year, from noted economists, I said maybe two,” he said. “I’m still saying maybe two.”
Ken Griffin expects a cut by December
Citadel’s Ken Griffin, meanwhile, believes the Fed could cut rates in December despite maintaining a skeptical approach that inflation will meet the central bank’s goal. “There is still a question of will inflation actually decelerate enough by then,” Griffin said at the Milken Institute Global Conference in May.
The billionaire hedge fund manager said lowered rates would happen at the end of the year if they don’t occur in September but urged for the central bank to hold off on cuts ahead of the upcoming U.S. presidential election in November to retain its apolitical status. He also noted that a combination of wage growth and de-globalization has taken away “from the constant deflationary trend that has helped the pricing of goods for frankly most of our adult lifetime.”
In March, while speaking at another conference in Boca Raton, Florida, Griffin again expressed his hope that the central bank avoids cutting interest rates too quickly. “The worst thing they could end up doing is cutting, pausing and then changing direction back towards higher rates quickly,” he said. “That would, in my opinion, be the most devastating course of action that they could pursue.”
Brian Moynihan is worried about consumer spending
Bank of America (BAC) CEO Brian Moynihan has in recent months repeatedly warned of cautious spending across consumers and businesses in the U.S. due to high inflation and interest rates. While speaking at a financial conference in New York this May, the executive said his bank economists “believe that inflation will take until the end of next year to get under control and that the Fed will begin cutting interest rates later this year.”
The comments follow Moynihan’s claims in February that rate cuts could bring equilibrium to the economy. Tensions between rising consumer prices combined with wage growth and low unemployment will be tempered by the end of 2025 with a federal funds rate in range of 3 to 3.5, he said during a CNBC interview. At the time, Moynihan noted that the Bank of America research team predicted three cuts in 2024 and four next year.
