With the Federal Reserve (Fed) announcing three times at the December FOMC meeting that it will stop raising interest rates and indicating that it will start cutting rates next year, several Fed banks have also provided their economic forecasts for 2024.
Title: The Era of Rate Hikes Ends! Fed’s Powell Declares “Cycle Approaching End” and Market Interprets FOMC: Six Rate Cuts in 2024
Background:
Printing Press Activated! Number of Central Banks Lowering Rates Surpasses Those Raising Rates, Is the Federal Reserve Next?
Table of Contents:
The US Economy Cannot Escape Recession, But It Won’t Be So Severe
Views from Various Wall Street Banks
Rate Cuts Are a Global Trend
The Federal Reserve (Fed) announced at the September, November, and December FOMC meetings that it would temporarily halt rate hikes. The federal funds rate was kept unchanged at 5.25% to 5.50% during this period. This led the market to believe that the most aggressive rate hike cycle in decades, which began in March 2022, is coming to an end. The eagerly awaited rate cuts are gradually coming into view.
As the market viewed the positive monetary policy signals optimistically, Bloomberg reported yesterday that it compiled the opinions of Wall Street economists on the US economy in 2024.
The US Economy Cannot Escape Recession, But It Won’t Be So Severe
According to Bloomberg, pessimists believe that although the Federal Reserve has released dovish signals, the negative impact of the previous aggressive rate hike policy on the economy will not be digested in a short period. For example, consumers’ accumulated savings during the global pandemic are facing depletion risks. Credit pressure and a cooling job market will also add pressure to economic development.
Bloomberg cited Anna Wong, Chief US Economist at Bloomberg, who quoted a report after the Federal Reserve’s “Beige Book” survey, stating:
However, many economists also believe that the economic recession in 2024 will not be as severe as the one that occurred in 2020, nor as prolonged as the global financial crisis at the beginning of this century.
Brett Ryan, Senior Economist at Deutsche Bank, stated when discussing predictions of a moderate economic decline:
Sam Bullard, economist at Wells Fargo, stated that the weakening trend observed in the labor market will eventually lead to a decrease in consumer spending. However, so far, the US economy has shown surprising resilience.
Goldman Sachs even holds an opposite view to the “economic recession theory.” Its Chief Economist David Mericle expressed optimism:
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Source: Bloomberg
Rate Cuts Are a Global Trend
On the other hand, central banks of most developed economies globally also held a series of policy meetings in December, demonstrating a unanimous intention to end the aggressive rate hike strategies that have dominated the global leading economies since 2022. Developing countries have even started cutting rates.
Further reading:
Printing Press Activated! Number of Central Banks Lowering Rates Surpasses Those Raising Rates, Is the Federal Reserve Next?
Federal Reserve Chairman Powell also stated in the December FOMC statement:
According to the dot plot, Fed officials expect to cut rates four more times in 2025. They believe that it will no longer be necessary to address CPI pressures through rate hikes because by the end of 2023, inflation will slow to 2.8%, and by the end of 2024, it will drop to 2.4%.
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Fed Dot Plot
Further reading:
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Tags:
Fed
Interest Rate Hikes
Economic Recession
United States
US Economy
Wall Street
Rate Cuts