Former PIMCO chief economist Paul McCulley says that the market is wrong about the Federal Reserve’s path to policy rates and predicts that rate hikes will end in May, indicating that mounting economic pressures will convince the central bank to stop hiking rates next month.
The former chief economist told CNBC’s Fast Money that there will be a pause next month and pivot later this year.
The prediction from McCulley is at odds with the current probability from the CME FedWatch Tool that gave nearly 70% chance for a 25 basis point increase and about 30% chance for the central bank to pause rates in the next meeting in May.
The Fed will look at the economic data this week, which will give an insight of how the trend will go. The U.S. inflation data for March will be published on Wednesday and the producer price data will be released on the following day.
Wall Street is expecting inflation for March to slow to 5.2% from 6% in February. Meanwhile, the producer price is expected to come in at 3% for March, compared to 4.6% in February.