The Federal Reserve is unlikely to cut interest rates this summer.

Investors will likely have to sweat through the summer as it looks increasingly unlikely that the Federal Reserve will cut interest rates.

Stronger-than-expected economic data, combined with new comments from policymakers, point to the impossibility of policy easing in the near term. This week, traders shifted futures prices again, moving away from the possibility of a rate cut in September and predicting only one cut by the end of the year.

The broader reaction was not pleasant, with stocks suffering their worst day of 2024 on Thursday and the Dow Jones Industrial Average breaking a five-week streak of gains ahead of the Memorial Day holiday.

“The economy may not cool down as much as the Fed would like,” said Quincy Crosby, chief global strategist at LPL Financial. “The market takes all that data and translates it into the way the Fed sees it. So if the Fed relies on data, the markets will probably rely more on the data.”

Over the past week or so, the data has sent a very clear message. Economic growth, if not rising, is at least stable, and inflation will always be present, with both consumers and policymakers wary of the high cost of living.

For example, weekly jobless claims hit their highest since late August 2023 a few weeks ago, but have since reverted to a trend of companies not increasing the pace of layoffs. Then there was the release of a lower-profile survey on Thursday that showed stronger-than-expected expansions in both the services and manufacturing sectors, while purchasing managers reported stronger inflation.

Both data points come a day after the release of minutes from the last Federal Open Market Committee meeting, showing that central banks still lack confidence to cut rates and that an unspecified number of people may even consider hiking if inflation worsens. He said he could come forward.

Moreover, Federal Reserve President Christopher Waller said earlier this week that he would need to see several months of data showing inflation is easing before agreeing to cut interest rates.

Taken together, there is little reason for the Fed to ease policy here.

“Recent Fedspeak and the minutes of the May FOMC meeting make it clear that rising inflation this year, coupled with robust activity, is likely to rule out a rate cut for the time being,” Bank of America economist Michael Garpen said in a note. “There also appears to be a strong consensus that the policy is in a limited area and therefore no increase would be necessary.”

At the most recent FOMC meeting, which ended May 1, some members questioned whether “higher interest rates may have less of an effect than they have in the past.”

BofA thinks the Fed could wait until December to begin cutting rates, but Gapen noted a number of wildcards that could come into play regarding the mix between a potentially easing labor market and easing inflation.

Economists like Gapen on Wall Street will be closely scrutinized next Friday when the Commerce Department releases its monthly report on personal income and spending, which includes the Personal Consumption Expenditures Price Index, the Fed’s most watched measure of inflation. .

The informal consensus is for a monthly increase of between 0.2% and 0.3%. But even relatively low increases may not give the Fed enough confidence to cut rates. At that rate, annual inflation is likely to remain just below 3% or well above the Fed’s 2% target.

“If our forecasts are correct, the (annual inflation) rate will fall by just a few basis points to 2.75%,” Gapen said. “There is little sign of progress in achieving the Fed’s goals.”

Reluctantly, the mayor agrees.

Where traders at the beginning of the year were expecting at least six cuts, Friday afternoon prices had now moved to about a 60% chance of just one cut, according to CME Group’s FedWatch tool. Goldman Sachs has postponed the first expected cut to September, but the firm still expects two cuts this year.

The central bank’s benchmark federal funds rate has been maintained at 5.25-5.50% since July of last year.

“We continue to see rate cuts as an option, which is easing the urgency,” said David Merikle, an economist at Goldman Sachs. “While Federal Reserve leaders share our relaxed view of the inflation outlook and appear prepared to cut interest rates in the near future, a number of FOMC participants remain more concerned about inflation and appear reluctant to cut.”