Will the Fed cut rates again before the end of 2024?
The Fed cut interest rates by 0.50% today as it begins the process of taking its foot off the economic brake. How many more cuts do experts think are coming?
The US economy has continued to show signs that two-decade high interest rates are having the desired effect of bring inflation back to the Federal Reserves 2% target. Likewise, the labor market has cooled to a point where policymakers felt that it is time to take their foot off the proverbial economic brake.
After the Federal Open Market Committee (FOMC) ended their September meeting it was announced “in light of the progress on inflation and the balance of risks” that the central bank will cut interest rates by 50-basis points. While the markets had already priced in a rate cut of a quarter percentage point, traders in recent days had increased their expectations that policymakers would go bigger according to the CME Group’s FedWatch tool. This is just the first of a series of cuts that investors predict will be implemented this year and into 2025.
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Will the Fed cut rates again before the end of 2024?
A poll conducted by Reuters among economists prior to the September FOMC meeting indicated a majority believed the Fed would cut rates at each of the remaining three meetings of the year, September being one of them, with only a third predicting just two cuts in 2024. The central bank is widely expected to lower interest rates to around 4.5% or even 4% by the end of the year. And the belief is that there will be more in 2025.
Just how much they reduce borrowing costs in the long term is still up in the air as economic conditions will have a hand in their decisions going forward. They played a role in delaying this first cut from earlier predictions as economic growth proved stronger than expected and inflation sticky.
Economists are currently not expecting that rates will return to their rock-bottom levels seen during the pandemic. The near-zero rates that were put in place then and during the Great Recession came about to pull the economy out of extraordinary slowdowns.
Today though, the US economy is in a much better position with employment sitting at 4.2%. While that is higher than the 3.4% last year, it is still historically low. Furthermore, employers are still hiring, just at a slower rate.