The Federal Reserve executed an unanticipated policy reversal at the close of 2023.
During their final meeting of the year in December, central bankers communicated that their nearly two-year struggle against inflation has reached its conclusion, and that a sequence of interest rate reductions are forthcoming.
In revised quarterly economic projections released subsequent to the meeting, a significant proportion of Federal Open Market Committee members anticipate a reduction in interest rates to 4.6% by the conclusion of 2024. This implies that a minimum of three quarter-point rate cuts are probable in the coming year. Further rate decreases were also anticipated by policymakers for the years 2025 and 2026.
Last month, Fed Chair Jerome Powell told reporters, “We are witnessing robust growth that seems to be decelerating, a labor market that is regaining equilibrium by numerous indicators, and inflation that is making substantial advancements.” “This is precisely what we have been anticipating.” There is still much progress to be made. There is no declaration of victory. That would be an early start, and the progress towards that goal cannot be guaranteed.”
THE FED’S CONTRAST WITH INFLATION AFFECTS AMERICANS IN THE MIDDLE CLASS.
Despite this, traders are placing bets on even more aggressive rate cuts commencing in March, notwithstanding a report of inflation that is higher than anticipated and recent endeavors by Federal Reserve policymakers to moderate expectations. Approximately 71.4% of investors are presently pricing in a quarter-point or greater cut in March, according to the FedWatch tool of the CME Group, which monitors trading.
ACCORDING TO THE FOX BUSINESS APP,
“We entered 2023 concerned about inflation and the number of times the Federal Reserve would raise interest rates,” said Independent Advisor Alliance chief investment officer Chris Zaccarelli. “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.”
A FED PAUSE IS Unlikely to Assist Difficult Consumers.
Economists at Goldman Sachs forecast that the central bank will reduce interest rates by a total of five times in 2024, as Fed policymakers effectively accomplish a “soft landing” amidst a progressive deceleration in economic expansion.
