Experts weigh in on US Federal Reserve's rate path: Pause now, cuts later in 2024
While the consensus leans towards the US Federal Reserve maintaining its current interest rate range at 5.25% to 5.5% for the near term, the perspectives of market experts like Fook Hien Yap from Standard Chartered Bank and Ed Yardeni of Yardeni Research add depth to the ongoing debate about the timing and extent of future rate cuts.
The expectation that the US Federal Reserve will maintain the interest rate range at 5.25% to 5.5% during its policy announcement on January 31 is widely accepted. Nonetheless, the focus now shifts to insights from Federal Reserve Chair Jerome Powell regarding future rate adjustments. Market observers are particularly keen on understanding both the potential timing and scale of any rate cuts.
Fook Hien Yap, Senior Investment Strategist at Standard Chartered Bank, echoed the prevailing market sentiment in discussions with CNBC-TV18, saying "Our expectation is pretty much with what the consensus is saying -- that it will be a pause (this time)."
Yap outlined expectations for a series of rate cuts throughout 2024, amounting to a total of 125 basis points, with the majority anticipated in the latter half of the year.
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Despite the current prediction of a less than 50% chance for a rate cut in March, comments from Powell that leave the door open for such a move in March will garner significant attention, Yap said.
Yap also highlighted the importance of upcoming economic data, including employment and inflation figures, in shaping the Fed's future decisions.
Meanwhile, Citi's Global Economist, Robert Sockin, in December, shared with CNBC-TV18 his forecast of no rate cuts until at least July of the next year, suggesting that when cuts do occur, they might exceed the Fed's current guidance.
In December, the Fed hinted at the possibility of three quarter-point rate reductions in the coming year, a more conservative outlook compared to market and some economists' expectations for five cuts.
However, Federal Reserve Bank of Philadelphia President Patrick Harker in a radio interview later noted that while “It’s important that we start to move rates down...we don’t have to do it too fast, and we’re not going to do it right away.” While Harker won’t vote on policy this year, he’ll be part of the discussion during the Federal Open Market Committee meetings.
With interest rates at their highest in over two decades and stable since July, “Even if there are three rate cuts next year, rates are still going to be at very elevated levels by the end of 2024,” according to Simon Baptist, Chief Economist at the Economist Intelligence Unit.
Ed Yardeni of Yardeni Research also introduces a cautionary note, suggesting the Fed may even temper expectations for swift or significant rate reductions to manage market anticipations more prudently.
"Now, there could be some correction (in the market), if and when the market starts to conclude that the Fed isn't going to be quite as easy, as is, has been discounted recently. I will not be surprised if the Fed officials come out talking quite hawkish, trying to convince people not to overreact here and anticipate too much of an easy move," he said in an interview with CNBC-TV18.
Yardeni's insights, shared in an interview with CNBC-TV18, underscore the delicate balance the Fed seeks between fostering economic growth and preventing inflation resurgence.
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First Published: Jan 31, 2024 11:44 AM IST
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