At its last monetary policy meeting in 2023, the FED signaled that three interest rate cuts could be made next year.
FED May Cut Interest Rate by 200 Basis Points in 2024
However, as noted on the CME FedWatch Tool, market expectations are pricing in around 200 basis points of easing in 2024, with the central bank expected to begin easing as early as March.
As we enter the new year, many analysts and banks are following a line closer to market expectations rather than the FED's own projections. However, the majority still see March as early for the start of a new easing cycle.
“If the Federal Reserve cuts interest rates in March, that would signal that the US economy is heading for a recession, and that's not the message they want to send,” commented Colin Cieszynski, portfolio manager and chief market strategist at SIA Wealth Management.
While markets predict that the FED will cut interest rates significantly next year, they also predict that economic activities will be relatively stable.
Sameer Samana, senior global market strategist at Wells Fargo, emphasized this contrasting perspective in his 2024 outlook, saying:
“Either this soft landing will accelerate again and we will be dealing with inflation again, or this soft landing will only be momentary and the economic slowdown will widen and deepen and we will find ourselves in a much harder landing, which would be really bad.”
On the other hand, TD Securities analysts predict that as growth slows down, the Federal Reserve will loosen interest rates by 250 basis points next year and the first interest rate cut will be made in May.
Similarly, Commerzbank analysts predict that the Federal Reserve will cut interest rates by 200 basis points next year and the first cut will be made in May.
*This is not investment advice.