Cathay United Bank: Fed May Cut Rates in Q4 if Supply-Side Shocks Ease

(Central News Agency reporter Su Ssu-yun, Taipei, 30th) Following the U.S. Federal Reserve's decision to keep interest rates unchanged, Cathay United Bank stated today that due to the stalemate in U.S.-Iran diplomatic mediation and inflationary pressures from high oil prices, the Fed will maintain a wait-and-see approach in the short term. However, if future supply-side shocks gradually ease, accompanied by a cooling labor market and slowing wage growth, the Fed is still expected to have an opportunity to initiate interest rate cuts in the fourth quarter of this year, though the overall policy pace will be cautious.

The U.S. Federal Reserve (Fed) today decided to keep interest rates unchanged, maintaining the federal funds rate in the range of 3.5% to 3.75%. Regarding the decision-making process, the meeting passed the resolution to maintain interest rates with 8 votes (for maintaining rates) to 4 votes (against).

Looking ahead at future interest rate policies, Cathay United Bank analyzed that due to the stalemate in U.S.-Iran diplomatic mediation and inflationary pressures from high oil prices, the Fed will maintain a wait-and-see approach in the short term. If future supply-side shocks gradually ease, accompanied by a cooling labor market and slowing wage growth, the Fed is still expected to have an opportunity to initiate interest rate cuts in the fourth quarter, but the overall policy pace will be cautious.

Regarding future macroeconomic performance, Cathay United Bank stated that high oil prices lead to increased raw material and transportation costs. If the recovery of the Strait of Hormuz is slow, it will subsequently lead to a compression of disposable income for the public and corporate profits. On the other hand, the continued expansion of capital expenditure in the technology industry still provides support for economic momentum. Overall, inflation gradually has an upside risk, while economic growth gradually has a downside risk.

For the stock market, Cathay United Bank pointed out that as market expectations for the "worst-case scenario" of the Middle East conflict cooled, it led to new highs for U.S. stocks. However, given the significant short-term gains, attention still needs to be paid to market volatility risks, and excessive chasing of prices is not advisable. In the long term, U.S. corporate earnings are estimated to still have about 20% growth potential in 2026, with fundamentals continuing to support the bullish trend.

For the foreign exchange market, Cathay United Bank analyzed that in the short term, the U.S. dollar still has support due to the slow recovery of the Strait of Hormuz and the bumpy path of U.S. interest rate cuts. After June, the policy pace of the European and Japanese central banks will further affect the future trend of the U.S. dollar. If the European and Japanese central banks raise interest rates again and the Fed delays its rate cut schedule, the U.S. dollar index is expected to consolidate between 97 and 100; conversely, if expectations for a Fed rate cut increase, the U.S. dollar may weaken. (Editor: Yang Kai-hsiang) 1150430

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