Amid Rising Speculation, the Federal Reserve may Cut Rates in 2024
The Marriner S. Eccles Federal Reserve building during a renovation in Washington, DC, US, on Tuesday, Oct. 24, 2023.
Valerie Plesch | Bloomberg | Getty Images
Interest rate cuts are always an interesting topic in the financial markets. If the Federal Reserve meets market expectations and starts cutting aggressively in 2024, it likely will occur amidst a slowing economy and rising unemployment, which could result in lower inflation.
Market participants, however, shouldn’t be too hasty because the Federal Reserve won’t cut for the sake of cutting. In fact, rate decreases are likely to come slowly unless the Fed is forced into more aggressive action. Kathy Jones, chief fixed income strategist at Charles Schwab, comments that this cycle is very different and that there will be much more caution.
The latest market debate on potential rate cuts was triggered when Federal Reserve Governor Christopher Waller expressed confidence in the policy if inflation data cooperates. Meanwhile, fellow Governor Michelle Bowman said she still expects rate hikes will be necessary.
Five Rate Cuts Anticipated
Joseph LaVorgna, chief economist at SMBC Nikko Securities America, said that if the economy moderates even a little, there could be a serious disinflation story. Market pricing has become more aggressive on fed funds futures, now pointing to five quarter percentage point rate cuts next year.
Fears of a Hard Landing
Hedge fund titan Bill Ackman warned that unless the Fed starts cutting, it could cause a sharp downturn that it then would have to address. Other analysts such as Chris Marangi echo the sentiment, emphasizing that significant rate cuts should be preceded by significant economic weakness.
Fears of a Hard Landing
Hedge fund titan Bill Ackman warned that unless the Fed starts cutting, it could cause a sharp downturn that it then would have to address. Other analysts such as Chris Marangi echo the sentiment, emphasizing that significant rate cuts should be preceded by significant economic weakness. Some Fed officials, however, aren’t showing their hands on when they think cuts will come, further fueling speculation on the future of the country’s monetary policy.
The U.S. economy and the Federal Reserve’s actions will remain under close watch in the coming months, as investors brace for potential changes in monetary policy. The timing, extent, and impact of any potential rate cuts are still uncertain, and various market participants have expressed differing opinions on what to expect. With economic projections being updated by the Federal Reserve in two weeks, participants should stay tuned for further developments that could signal the beginning of a new era for the U.S. economy and global markets.