Surprising Interest Rate Prediction for the Fed from Japanese Investment Bank

In February, while consumer inflation in the U.S. slowed down, Japanese investment bank Nomura believes this is not sufficient for the Federal Reserve (Fed) to implement interest rate cuts. According to Nomura's economists, the strengthening of core components in inflation indicators will lead the Fed to adopt a more cautious stance in its monetary policy.

Nomura economists noted that the consumer price index (CPI) components, which hold a higher weight in core personal consumption expenditures (PCE) inflation, came in stronger than expected. This prompted them to raise their February core PCE inflation forecast from 0.28% to 0.32%. They expressed that this strengthening in inflation indicators supports their view that the Fed will not cut rates this year, predicting that unless there are surprises from producer price index (PPI) data, this trend in core PCE inflation will result in a more hawkish stance from the Fed.