Rate hike may be Fed’s next move
NEW YORK: The Federal Reserve’s (Fed) next interest-rate move could be a hike –rather than a cut – if the US economy re-accelerates, potentially boosting the dollar, French bank Societe Generale (SocGen) says.

After its most aggressive tightening cycle in decades, the Fed is widely expected to deliver its first rate cut by June, as inflation has shown signs of slowing.

Traders are betting on roughly 100 basis points of easing this year.

But for Kit Juckes, chief foreign-exchange strategist at SocGen, the Fed “has no reason to hurry” to cut rates and might even hike them further.

This is as the 525 basis points of rate hikes since 2022 has done little to slow the US economy and its labour market.

“If the US economy re-accelerates, the Fed will eventually have to tighten again and the dollar will rally,” he wrote in a note to clients.

Such a move by the Fed could push the dollar back up to an all-time high versus a basket of other international currencies, he added.

Fed chairman Jerome Powell has said he is waiting for inflation to slow to 2% before starting to cut rates.

Last week, he said the US central bank may have to wait beyond March for this to happen.

Markets have since been paring back bets for rate cuts this year.

While the Fed is focused on inflation, Juckes said he is “more bothered” by signs of the US economy re-accelerating.

“Consumer price index data matter, but the main driver of stickiness is stronger-than expected-growth, so that’s where our focus should be,” he said.

A strong labour market, retail sales and manufacturing activity have boosted US growth to an annualised 3.3%.

That’s setting the United States far ahead of other major regions, including the eurozone, where growth has stagnated, and the United Kingdom and Japan, which both fell into technical recessions in the second half of 2023.

Further, the Bloomberg Dollar Spot Index hit a three-month high this week, and has gained nearly 3% this year. — Bloomberg
Banking
NEW YORK: The Federal Reserve’s (Fed) next interest-rate move could be a hike –rather than a cut – if the US economy re-accelerates, potentially boosting the dollar, French bank Societe Generale (SocGen) says.