SHANGHAI, Apr 24 (SMM) – Wells Fargo does not expect the Fed to cut its key lending rate in 2023, but the U.S. economy will eventually slip into recession later this year, in stark contrast to some market expectations that the Fed's policy may shift.
Inflation and interest rates are currently constraining the economy, but Wells Fargo warned that the Fed's work does not appear to be done. The bank does not expect the Fed to shift to cutting rates until policymakers are confident that inflation is on track to reach its 2% target, and sees a rate cut as unlikely before 2024.
Fed funds futures are currently pricing in a more likely hike of 25 basis points next month, followed by a pause in June and July.
Wells Fargo, however, expects multiple rate cuts next year as the Fed restricts credit "much less than it currently does.”
Fed policymakers at their March meeting projected a mild recession later this year, followed by a recovery over the next two years. This is the first time since 2020 that the Fed has publicly indicated that it expects a recession.
The Conference Board's Index of Leading Indicators also showed that a recession is looming. Data for March fell 1.2% to the lowest level since November 2020, marking the 12th straight month of contraction. Justyna Zabinska La Monica, senior manager of business cycle indicators at the think tank, said economic weakness is expected to intensify and widen in the coming months, leading to a recession starting in mid-2023.
