The Fed shouldn't cut rates at all this year as the US is poised for a 2nd half rebound, macro strategist says

Rate cuts aren't warranted, as the economic slowdown of recent months is set to reverse course in the latter part of this year, Jim Bianco said.

• The Fed shouldn't cut interest rates at all this year, strategist Jim Bianco said.
• He predicts the economy's slowdown will revert in the second half of 2024.
• "Given the strength of the economy, I don't think it's warranted."

The Federal Reserve risks prematurely cutting interest rates right as the US economy is poised to reaccelerate, Jim Bianco told CNBC.

"The reason I suspect that we're going to have zero rate cuts is I don't think they're warranted. The economy is continuing to move along just fine," the Bianco Research president said on Friday, adding: "I suspect there'll be a second-half rebound."

His prediction stands apart from most of Wall Street, with analysts and investors projecting some easing in the latter part of the year.

Backing the notion are promising declines in inflation and a cooling of the labor market. In June, the consumer price index fell to 3.3%, while the unemployment rate ticked up to 4.1%.

Fed fund futures indicate that three 25-basis point interest rate cuts could come this year, starting in September.

"With both inflation and the labor market softening, the door now appears wide open for the Fed to begin cutting rates," UBS' Brian Rose wrote on Sunday. "We expect them to use the FOMC meeting at the end of the month to signal that they are prepared to cut at the September meeting as long as the data continues on its recent trend."

But to Bianco, the concern is that the economic data won't remain on trend. Interest rates will remain pressured by today's high level of government spending and continued consumer strength.

The problem with cutting rates in this environment, he said, is that the Fed's neutral rate — the rate that causes the economy to neither contract nor expand — stands at around 4%.

"If they're gonna do two [cuts] this year, they're effectively going to be at neutral by the end of the year," Bianco said. "Given the strength of the economy, I don't think it's warranted."

To be sure, some on Wall Street hold the opposite concern. For instance, Charles Schwab notes that the slowing of the economy indicates an even greater slump ahead, not the rebound Bianco anticipates.

On Friday, Schwab pointed out worrying signs in the labor market, such as declining nonfarm payroll growth and weakness in the ISM Services Purchasing Managers index. Though this doesn't immediately signal a recession, wider cracks could be a detriment to growth, Schwab wrote.