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Nomura No Longer Expect Recession After Easier Financial Conditions

US OUTLOOK/OPINION
  • “Faster disinflation and the Fed’s dovish pivot have led to easing financial conditions and robust risk sentiment. This reduces the risk of a sharp credit contraction in the business sector and may unleash pent-up demand in housing and consumer spending when the Fed delivers its widely expected rate cuts.”
  • “Although recession risks will linger, a revival of the “Fed Put” reduces any downside risks” and so a contraction is no longer Nomura’s base case.
  • They look for the Fed to cut rates by 100bp this year (May, July, Sept and Dec), pulled forward from Jun, Sept, Nov and Dec in their prior view from the Bloomberg survey in late December.
  • “The path will be sensitive to incoming data surprises, but in principle, we think the Fed would prefer to move gradually and space out rate cuts. There is likely a weak preference to ease on SEP meetings (Mar/Jun/Sept/Dec), because of the greater opportunity for nuanced communication.”
  • Nomura also expect “an announcement slowing the pace of balance-sheet rundown in June” and then for “the pace of treasury monthly runoff to be reduced to $30bn from $60bn, starting in July. Eventually, we expect QT to end in December this year with the combined amount of ONRRP and bank reserves at about $3.0 trillion.”
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