While Federal Reserve officials generally estimate that the central bank will cut rates three times in 2024, independent investors bet there will be six for a cumulative 1.25 percentage point drop.
Since March 2022, the Federal Reserve has hiked interest rates up 11 times to conquer inflation. This has resulted in the highest mortgage rates in decades and the highest ever credit card Annual Percentage Rates (APRs). Currently, interest rates stand between 5.25 and 5.5 percent.
There are 19 officials on the rate-setting Federal Open Market Committee (FOMC): all but two believe rates will be cut at least once, and one official believes they will be cut six times.
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Meanwhile, about 88 percent of investors are expecting a quarter point slash in March, according to CME Group’s FedWatch. Wall Street experts believe the Fed is going to cut interest rates six times in 2024, basing this estimate on the fall of inflation evinced by the current decline in personal consumption expenditures, and a smaller-than-expected increase in core prices.
Factors such as moderating inflation, a cooling jobs market, and a deteriorating consumer spending outlook suggest that the Fed might need more interest rate cuts than what the market anticipates.
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— unusual_whales (@unusual_whales) December 27, 2023
The figure of six rate cuts was suggested back in November by ING Economics, a global market research firm. “We have modest growth and cooling inflation and a cooling labour market — exactly what the Fed wants to see,” ING chief international economist James Knightley said at the time. “This should confirm no need for any further Fed policy tightening, but the outlook is looking less and less favourable.”
In the final meeting of the year for Federal Reserve policymakers, there was a general consensus that the long struggle against inflation is nearing to a close. “We are seeing strong growth that appears to be moderating, we’re seeing a labor market that is coming back into balance by so many measures, and we’re seeing inflation making real progress,” said Fed Chair Jerome Powell. “These are the things we’ve been wanting to see. We still have a ways to go. No one is declaring victory. That would be premature, and we can’t be guaranteed of this progress.”
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