DBS Bank: Pricing in the Fed’s aggressive rate cuts could lead to disappointment and panic

DBS Bank said the market expects the Federal Reserve to make a series of rate cuts, but aggressive market pricing may be disappointed and eventually trigger panic. "Inflation below 3% and policy rates above 5% tend to be difficult to coexist, so some monetary easing is necessary," economist Taimur Baig wrote in a report. "But the rate cuts priced in by the market seem too large. For the yield curve to reflect a rate cut of more than 200 basis points over the next 16 months, the US economy must weaken significantly and inflation must fall below 2%, which is unlikely to happen." DBS Bank's base case is that the Fed will cut interest rates by 150 basis points by the end of 2025, with a 25 basis point cut this week. (Jin Shi P)