Fed's rate cut may not come as quickly as market anticipates: Stifel economist

Lindsey Piegza, the chief economist for the Stifel is seen in this undated file photo. Courtesy of Stifel

The U.S. Federal Reserve may not lower its benchmark lending rate as quickly as the market anticipates due to the "sticky" nature of inflation, the chief economist of U.S. financial services firm Stifel said Wednesday.

In a written interview with Yonhap News Agency, Lindsey Piegza made the prediction amid expectations that the central bank would pivot to rate cuts next year as it signaled earlier this month that it is done with its hiking campaign launched in March last year to tame inflation.

"The first rate cut will likely be delayed until the second half of the year, with the ongoing sticky nature of core inflation complicating the Fed's ability to lower rates as quickly as the market anticipates," she said.

After this month's monetary policy meeting, the Fed kept the key rate steady between 5.25 and 5.50 percent, while its median economic forecast showed the rates would be cut to 4.6 percent at the end of next year, signaling possible three quarter-point cuts from the current range.

U.S. companies, such as Goldman Sachs and BofA Global Research, have predicted that Fed rate cuts may start in March next year.

Offering next year's economic projection, the prominent economist raised the possibility of stagflation — an economic situation marked by a confluence of stagnant growth and still-high inflation.

"The probability of recession remains elevated at roughly 55-60 percent. However, the more likely scenario is a subdued pace of growth with still elevated inflation," Piegza said.

Heading into the new year, the global economy faces uncertainties from the war between Israel and the Hamas militant group and the November U.S. election expected to be a rematch between former President Donald Trump and incumbent President Joe Biden, she noted.

"Uncertainty and volatility will expectedly increase with downside risks to the market amid a visceral rematch between Biden and Trump," she said.

"The Middle East conflict is likely to expand in size and scope threatening further global calamity and potential upward pressure in global markets for food, fertilizer and energy among others," she added.

Piegza also warned that "geopolitical disruptions" could cause a renewed disruption although global supply chains have widely been restored. (Yonhap)