ING Bank forecasts the US Federal Reserve will not raise interest rates this year and will maintain a prolonged freeze, according to a monthly global economic outlook report released on the 9th (local time). The Dutch bank's base scenario sees the Fed holding its policy rate at current levels until mid-next year, despite markets pricing in additional rate hike possibilities within the year. ING attributes this outlook to slowing shelter inflation—a core component of the US economy—and cooling labor market conditions that are reducing wage pressures, even as Fed officials issue hawkish warnings. The assessment follows the Federal Open Market Committee's recent hawkish stance, which ING believes has led markets to overestimate tightening expectations.
ING Cites Slowing Shelter Inflation and Labor Market Cooling
ING diagnosed that market tightening expectations have grown excessively following last month's hawkish Federal Open Market Committee stance. The bank's analysis highlights that shelter inflation—a core pillar of the US economy—is decelerating, and labor market cooling is weakening wage growth pressures. The report states that if the Fed confirms a downward stabilization trend in underlying inflation while maintaining a rate freeze, excessive market expectations for rate hikes will reverse.
Short-Term Treasury Yields May Face Downward Pressure in Second Half
ING's report explains that if the Fed freezes rates while confirming downward inflation trends, short-term Treasury yields will face downward pressure from the second half onward as excessive rate hike expectations unwind. The bank adds that while short-term rates decline, long-term real rates will remain elevated, causing the yield curve to gradually steepen. Lower short-term rates are expected to reduce dollar hedging costs.
ING Maintains Negative View on Dollar Toward Year-End
ING forecasts the dollar's strength trend will gradually fade as short-term rate declines lower hedging costs. The bank stated that while the Fed's decision on whether to raise rates within the year would be a very close call, the central bank will ultimately maintain current levels for a considerable period before entering a gradual cutting cycle from the second half of next year. ING conveyed that it maintains a somewhat negative view on the dollar heading toward year-end and next year.
FAQ
What is ING Bank's forecast for Fed interest rates this year?
ING Bank forecasts the Federal Reserve will not raise interest rates this year and will maintain a rate freeze at current levels until mid-next year, despite markets pricing in additional rate hike possibilities.
Why does ING believe the Fed will hold rates?
ING cites slowing shelter inflation—a core component of the US economy—and cooling labor market conditions that are reducing wage pressures, even as Fed officials issue hawkish warnings following the recent FOMC meeting.
How will the Fed's rate freeze affect Treasury yields according to ING?
ING's report states that if the Fed confirms downward inflation trends while freezing rates, short-term Treasury yields will face downward pressure from the second half onward as excessive market rate hike expectations unwind, while long-term real rates remain elevated, steepening the yield curve.
