Stocks' best assumptions about interest rates dashed after March CPI release

• The stock market's best expectations for a Fed rate cut are in jeopardy.

• Inflation was higher than expected for the third consecutive month in March.

• Some Wall Street strategists are warning that the Fed is unlikely to cut rates anytime soon.

The best-case scenario for rate cuts this year has been shattered, with central bankers now likely to keep rates higher for longer than previously thought, Wall Street strategists warned.

Before March's inflation figures, the market was confident of three rate cuts, even if they would not come as quickly as previously hoped. Now, according to some forecasters, two cuts would be generous, with some even calling for only one cut before the end of the year.

Forecasters' outlook on the direction of interest rates became more hawkish this week after higher-than-expected inflation.Consumer prices rose 3.5% year-on-year in March, the third consecutive month above economists' expectations.

The Fed has said it needs to see more hard evidence that inflation is on track to reach its 2% target before easing monetary policy.

Most investors have ruled out the possibility of a Fed rate cut in June. According to the Chicago Mercantile Exchange FedWatch tool (CME FedWatch tool) data, the market on the probability of a rate cut that month priced in only 22%, down from 72% a month ago.

"You can say goodbye to the June rate cut," Greg McBride, Bankrate's matte financial analyst, said in a report Wednesday." On inflation, he added, "There's been no improvement, and we're headed in the wrong direction.

Here's what five top experts and commentators expect from the Fed's next move in interest rates:

Larry Summers won't cut rates in June, may raise them.

Former Treasury Secretary Larry Summers predicts that central bankers are highly unlikely to cut interest rates in June-they may even raise them again in an effort to get inflation back under control.

"Based on current facts, a rate cut in June would be a dangerous and serious mistake, comparable to the one the @Fed made in the summer of 2021. We don't need a rate cut now," Summers posted on X this week, though he later told Bloomberg that his forecast could change if inflation data weakens.

Summers believes that the risk of the Fed's next interest rate rise is actually rising. He pointed out that the chances of this situation is very small, but in March after the CPI announcement, the odds have been up. Earlier this year, he said he thought the Fed in the rate cut before the possibility of another rate hike 15%.

"I don't know if it's 15% or 25%, but I think the next rate hike will be in that range," he said on Wednesday about the likelihood of future rate hikes.

Royal Bank of Canada Capital Markets: "No rate cuts before Christmas

The Fed won't cut interest rates until the end of 2024, strategists at Royal Bank of Canada (RBC) said in a report Wednesday. That compares with the firm's initial forecast of a 75 basis point rate cut by the end of the year.

"While not an absolute worst-case scenario, we believe that today's 0.359% monthly core data rate - and more specifically the questionable supercore data rebound - may have dealt a critical blow to this narrative, and with it the possibility of a June rate cut," the report said, referring to the core and supercore inflation data. "The report said in reference to the core and supercore inflation data." It's not even this morning's CPI data per se, but how that data changed the framework of the January and February data.

Goldman Sachs will only cut rates twice this year.

Goldman Sachs said the Fed may only cut rates twice in 2024, down from its initial forecast of three rate cuts for the year.

Strategists warned that the Fed's first rate cut could also come later than the market initially expected. The bank is now calling for the first rate cut to begin in July rather than June, with a second cut in November.

Bank of America: 'Little Confidence' in June Rate Cut

The Bank of America maintains its outlook for three rate cuts in 2024, with the first coming in June. But strategists are now less confident in this expectation due to the fiery March inflation report.

"In aggregate, we maintain our outlook for a June rate cut, but are less confident and look to tomorrow's PPI data for further evidence of what may be in store for core PCE inflation in March," the strategists said, referring to the Producer Price Index report." That is, we think the March CPI report points to a significant risk of the Fed delaying the start of easing."

The bank warned that the Fed could push back the rate-cutting cycle to December, or even March 2025, if inflation data continues to look unfavorable.

Barclays Bank cuts rates once in the second half of the year

Barclays Bank now expects only one rate cut this September. That's down from the company's original forecast, which said the Fed would cut rates every other month starting in June.

"However, we think it is almost as likely that a rate cut will be pushed back to December, especially if deflation proves to be slower than expected," the strategists warned.

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