It is likely that the Fed will start cutting aggressively in 2024 against a backdrop of a slowing economy and rising unemployment, resulting in lower inflation.
It is unlikely that central bank policymakers will cut simply for the sake of cutting. The Fed will need a compelling reason to start easing, and even then, rate decreases are likely to be gradual unless something breaks, forcing it into an aggressive response.
“The market keeps trying to front-run these rate cuts, only to be disappointed,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “In a different cycle, when inflation hadn’t spiked so much, I think the Fed would have been cutting rates already. This is a very different cycle. There is going to be much more caution on their part.”
According to the CME Group, Fed funds futures now anticipate five quarter-percentage-point rate cuts next year, one more than before the latest speeches. In anticipation of lower interest rates, stocks have rallied since then.
I think that this could be a possible solution for the economy moving forward. As I have been updated on recently due to the Newsletter, interest rates are currently where they were during the 2008 financial crisis, so I think backing off on them is the right thing to do, assuming that it is done at the correct time. With inflation creeping up still, I think this could unintentionally exacerbate that.
ReplyDeleteEven with the expectations of the market, the central bank has firmly made their stance and it has been reflected in the actions of investors starting to prepare for lower rates which will cause stocks to rise.
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