During their last meeting of the year in December, central bankers gave hints that the nearly two-year struggle against inflation has finally come to an end and that more rate cuts are on the way.
According to revised quarterly economic predictions released following the meeting, most officials on the Federal Open Market Committee anticipate rates to drop to 4.6% by the end of 2024, indicating at least three quarter-point rate cuts in 2019. Additional rate reductions were also scheduled for 2025 and 2026 by policymakers.
The Fed’s Fight Against Inflation Is Hardening Americans In The Middle Cup
Although the Fed policymakers have recently attempted to moderate expectations and despite a hotter-than-expected inflation report, traders are banking for even more aggressive rate reduction, beginning as early as March. 71.4% of investors, based on trade data from the CME Group’s FedWatch tool, are currently pricing in at least a quarter-point decrease in March.
Inflation and the number of rate hikes the Fed would likely make were major concerns going into 2023, according to Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “But we are ending 2023 surprised at how low inflation has come down – especially as unemployment has remained so low – and are wondering how many times the Fed will cut.”
Impaired Consumers Are Likely Not To Benefit From A Fed Pause
Goldman Sachs economists predict that if Fed policymakers are successful in achieving a “soft landing” with gradually diminishing economic growth, the central bank will decrease interest rates five times in 2024.
Some analysts, however, predict that the Fed will hold off on raising interest rates in light of indications that the battle to return inflation to the central bank’s target rate of 2% will be more difficult and drawn out than anticipated. The Labor Department revealed this week that an increase in the price of food, gasoline, and rent caused the consumer price index to rise again in December.