Fed Rate Cut: BoA’s Mark Cabana Reveals What To Expect Ahead FOMC Meeting

The Federal Reserve is widely expected to announce a quarter-point interest rate cut this week following its two-day policy meeting. As central banks gear up for monetary policy decisions, market participants are keen to understand the rationale behind the anticipated cut and its future trajectory. Mark Cabana, Head of U.S. Rate Strategy at Bank of America Securities, provided insights into what to expect from the upcoming FOMC decision.

Fed Rate Cut Forecasted by BoA’s Mark Cabana Ahead of FOMC

According to Cabana, the Fed Rate Cut of 25 basis points comes as the Federal Reserve signals a shift toward a more gradual approach to rate adjustments. While inflation remains stickier than expected, the labor market continues to exhibit signs of moderation. Cabana noted that the Fed’s decision reflects concerns over maintaining restrictive monetary policy for too long.

The FOMC decision aligns with prior Fed signals to the market, ensuring stability and avoiding unnecessary disruption. Cabana emphasized that failing to follow through on prior guidance could upset financial markets, an outcome the Fed aims to avoid. Despite strong labor data and cooling employment growth, a cautious stance is justified.

The Head of U.S. Rate Strategy at Bank of America Securities emphasized, 

“They likely worry that if they don’t cut, they risk upsetting markets, so they’re going to go ahead with this cut and then signal that they’re likely moving to a bit of a more gradual upsetting markets.”

It is important to note that Fed rate cuts boost the crypto market and altcoins. BTC rallied past $100K as predicted due to the anticipated December cuts, which increased liquidity and investor risk appetite. Analysts highlight that a 25 basis point reduction could fuel further price momentum, with altcoins like Ethereum and XRP also drawing capital flows.

Sticky Inflation and Cooling Labor Market

The Fed Rate Cut comes amid persistent inflation that has proven difficult to bring down to the 2% target. Despite economic strength, rising prices remain a concern for policymakers. The potential for inflation to reaccelerate poses a risk that could force the Fed to reconsider its easing path in the future.

According to last week’s report, US CPI inflation data came in at 2.7% for November, aligning with market expectations and slightly up from 2.6% in the prior month. The Core CPI remained steady at 3.3%, sparking optimism among investors. This data has fueled hopes for a potential Fed rate cut, driving sentiment for a Bitcoin and altcoins rally in the coming weeks.

On the labor front, the hotter-than-expected US PPI inflation at 3% dampened hopes for a Fed rate cut, adding downward pressure on the crypto market. This comes as traders remain cautious, with concerns rising over potential hawkish moves by the Federal Reserve. 

More so, jobless claims have seen slight upticks, while broader employment data indicate a gradual slowdown. The Federal Reserve aims to balance inflation management with maintaining a healthy labor market ahead of the next FOMC meeting. Cabana pointed out that a rate cut helps avoid over-tightening, which could unnecessarily hinder growth.

In addition, Cabana dismissed suggestions that the Fed Rate Cut will alleviate the Treasury’s debt burden. Cabana suggested that the Federal Reserve will monitor inflation expectations to ensure they remain anchored. Should inflation show signs of acceleration, policymakers could be forced to halt cuts or even consider future rate hikes.

On the other hand, Elon Musk recently shared that government overspending remains the root cause of inflationary pressures in the US. He believes that eliminating wasteful expenditures through the Department of Government Efficiency (D.O.G.E.) could curb inflation. Musk’s focus on modernizing outdated federal IT systems aims to enhance transparency and prevent misuse of taxpayer funds.