Wall Street strategists express caution, noting that despite market optimism, immediate rate cuts are not likely.

The optimism hinges on the idea of a US “soft landing” leading to a “new growth era,” drawing parallels with the 1994-1995 period, Macquarie strategists said in a note today.

However, Macquarie is wary of overstating this analogy, highlighting significant differences in macro conditions between 2023-2024 and 1994-1995.

“The Fed has tightened much more in the recent cycle, leading indicators are chronically weak, and there’s no ‘peace dividend’ to enjoy, among other big differences with the roaring 90s,” the strategists said.

“The Bottom Line is that while the Fed did successfully engineer a soft landing in 1994-1995, and a new growth era was ushered in on the heels of an ongoing disinflation that followed, we’ll remind readers that the structural, cyclical, and liquidity backdrops behind that ‘soft landing’ were radically different than they are now.”

The FOMC minutes will be released later today and the strategists anticipate investors focusing on the depth of discussions about policy rate cuts.

While Jay Powell hinted at a robust discussion on cutting rates in December, other Fed speakers have since indicated that rate cuts are not imminent.

Richmond Federal Reserve President Thomas Barkin said today that “the potential for additional rate hikes remains on the table.”

“We tend to believe that rate cuts aren’t imminent too. The Fed has first to move to a neutral policy bias, then to an easing bias, before cutting the policy rate,” the strategists added.

“Traders may thus feel a bit of disappointment with today’s Minutes, therefore,” the strategists concluded.

Citi economists, including Andrew Hollenhorst, agree that minutes “will likely make some attempt to follow post-FOMC speakers in “pushing back” against markets pricing very near-term rate cuts.”

However, he doubts that the Fed officials will be “all that convincingly hawkish.”

“That’s because Fed policymakers are laying the groundwork for cuts later this year (if not quite as early as markets are pricing) and because Fed officials would prefer looser financial conditions to a rapid tightening.”

Federal Open Market Committee (FOMC) Meeting Minutes are due on Wednesday, at 19:00 GMT (14:00 EDT).

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