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What will Jerome Powell do with interest rates in 2024?

What will Jerome Powell do with interest rates in 2024?
Elmaz Sabovic

On December 13, the Federal Reserve maintained its key interest rate for the third consecutive time, indicating the likelihood of multiple cuts in 2024 and beyond.

As the inflation rate shows signs of easing and the economy remains stable, Federal Open Market Committee (FOMC) members unanimously decided to maintain the benchmark overnight borrowing rate within a targeted range of 5.25% to 5.5%.

In addition to opting for the status quo, committee members projected at least three rate cuts in 2024, with each increment assumed to be a quarter percentage point. This forecast is slightly less than the market had anticipated but represents a more assertive stance than officials’ previous indications.

Federal funds target rate historical chart. Source: Federal Reserve Bank of New York
Federal funds target rate historical chart. Source: Federal Reserve Bank of New York

The market’s decision to maintain the current stance was widely expected, potentially concluding a cycle involving 11 hikes, bringing the fed funds rate to its highest level in over 22 years. However, uncertainty remained about the extent of the FOMC’s ambition regarding policy easing.

Analysts opinion on possible rate cuts in 2024

Analysts are divided in their opinions on the possible rate cuts in 2024, as many see the possibility of multiple rate cuts as far-fetched, as we don’t have nearly enough data to speculate.

There is a 71% probability that the Federal Reserve will initiate interest rate cuts in March. However, this estimation appears disproportionately high, given the current economic conditions.

A more accurate assessment places the likelihood at approximately 40%, pending the release of January and February inflation figures, providing crucial data for a more informed analysis, as stock analyst Gurgavin Chandhoke indicated in his X post on December 22.

Possible target rate cuts chart. Source: Gurgavin Chandhoke
Possible target rate cuts chart. Source: Gurgavin Chandhoke

On the other hand, these rate cuts are a ‘present’ for Jerome Powell, chair of FOMC, as “consumers are spending, the economy is rolling along creating jobs and lifting incomes, and yet inflation is simmering down nicely. .. the endgame is turning out better than the Fed or nearly anyone could have imagined ..” according to CNBC analyst Carl Quintanilla post on December 22.

U.S. personal income and consumption monthly chart. Source: Carl Quintanilla
U.S. personal income and consumption monthly chart. Source: Carl Quintanilla

It might be too early to tell whether rate cuts will come, how many will be, and by what amount. Analysts disagree as some are pessimistic while others are not. In conclusion, a substantial lack of data exists to form a calculated opinion.

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