Ellen Zentner, Morgan Stanley's Chief US Economist, stated that she believes that the FED has completed the current interest rate hike cycle.
In a recent episode of the What Goes Up podcast, Zentner weighed in on the Fed's decision to keep the benchmark federal interest rate steady and shared his predictions for future monetary policy and the U.S. economy.
“I have a strong view that they are done here – but they left the door open,” Zentner said. Zentner believes that with inflation falling, the US Federal Reserve will keep interest rates steady until it is ready to cut interest rates next year.
Zentner also highlighted the potential effects of a Republican government shutdown in the United States that could deprive policymakers of all the economic data they need to make decisions. This situation may strengthen the hands of FED officials to maintain the status quo at the November meeting.
Zentler said the following is a condition for interest rate increases to continue:
“First, they should be satisfied with the increasing slack in the labor market and the slowdown in employment growth. Secondly, the essential services sector will need to deviate from the current trend and gain significant momentum again.”
Zentner predicts that interest rate cuts for 2024 will start in March and will be 25 basis points quarterly. While the Fed currently expects two rate cuts next year, Zentner suggests there may be disagreement on that outlook.
*This is not investment advice.