When will the Fed deliver the first rate cut?

Despite Fed assurances that rate cuts aren't on the horizon, with real rates likely to soon hit significant levels, the jobs market is likely to decide whether rates are cut in 2H23.

While the Fed continues to postulate that it doesn’t see any rate cuts during 2023, with the CPI likely to see major disinflation over the next two months (I currently forecast a decline to 3.1% in June), and employment growth weakening, there’s plenty of historical evidence to suggest that rate cuts may not be too far away.

Last rate hike to first cut: 7 months is the median length of time

In data dating back to 1968, the median length of time that passes from the Fed’s last rate hike to its first rate cut, is 7 months. This analysis uses the Fed’s less volatile discount rate up until 1988, and the Fed’s federal funds rate target thereafter.

The longest stretch of time between the last rate hike, and the first rate cut of the cycle, is the 19 months spanning across 1969-70, that it took for the Fed to lower its discount rate. On the flipside, the shortest was just one month, when the federal funds rate target was cut in June 1989, after being raised in May.

Should May’s interest rate inc…