Investing.com -- The Federal Reserve is expected to initiate its first rate cut in over a year at its September meeting, but HSBC analysts said in a note Thursday that they believe the central bank will proceed cautiously with no firm commitment to further cuts in the near term.
HSBC anticipates a 25-basis point (bp) reduction in the federal funds target range, lowering it from 5.25%-5.50% to 5.00%-5.25%.
"We expect the FOMC's median projection for the federal funds target range at end-2024 to fall to 4.50-4.75% (from 5.00-5.25% previously), consistent with our forecast of 25bp rate cuts in September, November, and December," HSBC wrote.
However, they also said the Federal Open Market Committee (FOMC) is unlikely to commit beyond the initial 25bp cut at this stage.
The firm explained that while recent inflation data came in slightly higher than expected, the wider economic outlook supports the case for a gradual approach.
"The latest inflation data came in a bit higher than we had anticipated, providing FOMC policymakers with another reason to start with a smaller initial rate cut of 25bp, rather than a larger 50bp move," HSBC stated.
In addition, the bank does not expect significant revisions to the Fed's economic projections in the upcoming quarterly report.
They explained that they expect the FOMC's year-end 2024 median projection for the federal funds rate to drop to 4.50%-4.75%, consistent with their forecast of incremental rate cuts.
Fed Chair Jerome Powell is expected to take a cautious tone in his press conference, stating that future policy decisions will be made "meeting by meeting" while monitoring economic data.
HSBC also expects Powell to highlight the Fed's dual mandate of reducing inflation to 2% while maintaining a strong labor market.