Federal Reserve Chair Jerome Powell has said to not expect interest Fed rate cuts in 2024 anytime soon. Now, Wall Street rate cut expectations have shifted to questioning the possibility of no rate cuts at all this year.
Fed Rate Cuts in 2024
The recent statement by Powell shows that reaching the Fed’s 2% inflation target might take longer than expected. This might delay any policy easing that might have been approaching. According to Mark Zandi, chief economist at Moody’s Analytics, the Fed is looking at inflation closely and may need 2 to 3 consecutive months of consistent 2% inflation to consider Fed rate cuts in 2024, which likely will not happen before September.
Inflation has been around 3%, making it challenging for the Fed to reach its 2% target. Wall Street Rate cut expectations have been changing, with a 71% likelihood of the Fed waiting until September for any action. As of Wednesday afternoon, the CME Group’s FedWatch gauge shows a 44% chance of a rate cut in July.
As for a second Fed rate cut, it is uncertain, with possibilities ranging from December to November. Zandi suggests two rate cuts: one Fed rate cut in September and another possibly in November. Even though Fed officials claim that politics do not influence them, Wall Street rate cut expectations are said to be around November.
When is the Next Possible Rate Cut
Currently, there’s an 11% chance that the Federal Reserve will not introduce interest rate cuts at all this year. Wall Street rate cut expectations are that there probably won’t be any Fed Rate cuts in 2024 this year. They have highlighted the possibility of fed rate cuts in 2025, possibly in March.
At the start of 2024, markets expected the Fed to make at least six quarter-point rate reductions.
Bank of America economist Stephen Juneau stated that policymakers will unlikely introduce interest rate cuts in June or September. If inflation data decreases in the coming months, there might be a chance for the central bank to consider easing.
Citigroup expects the Fed to start easing in June or July, with multiple Fed rate cuts throughout 2024. Citi economist Andrew Hollenhorst believes that future inflation data could surprise Powell and his colleagues. Goldman Sachs slightly adjusted its prediction for the timing of policy easing, now expecting it in July instead of June, citing the ongoing disinflationary trend.
Krishna Guha from Evercore ISI says the Fed might resume rate cuts if inflation data improves as Expected. However, Guha also cautions that the Fed’s stance remains sensitive to incoming data and could change quickly depending on inflation trends.
According to Wall Street rate cut expectations, Zandi suggests that the Fed should have started cutting rates earlier, especially since inflation has cooled from its peak in mid-2022.
Zandi believes a Fed policy error is the biggest economic risk now. With near-full employment and nearly hitting their inflation goal, he focuses on the need for caution. Zandi suggests they might risk causing harm without clear benefits. If he were on the committee, he would already take action.
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