The recent surge in the stock market is driven by the belief that the Federal Reserve will cut interest rates more than initially anticipated next year, given the rapid decline in inflation and the robust economy’s resilience against a potential recession.
However, expectations for the upcoming week’s Federal Reserve meeting lean towards maintaining the current interest rates, marking the third consecutive meeting without adjustments. This suggests a conclusion to the central bank’s aggressive rate hike campaign of the past four decades.
While market forecasts indicate the possibility of four to five quarter-point rate cuts in 2024, financial institutions like Goldman Sachs and Barclays predict the Fed will likely project only two cuts. This aligns with the Fed’s September forecast, assuming a final hike this month, aiming to counter market speculation about imminent rate reductions.
The expected rate cuts are not driven by an economic downturn, as the likelihood of a recession diminishes. Instead, the focus is on inflation falling closer to the Fed’s 2% target. Recent data shows consumer prices rose 3.2% annually in October, down from a 40-year high of 9.1% in June 2022, contributing to the Fed’s confidence in maintaining a solid economy with moderate job gains and pay increases.
The Fed’s Wednesday meeting is expected to result in a slight reduction of its forecast for the preferred annual inflation measure, PCE, to 2.5% by the end of next year. This adjustment, coupled with an increase in the 2024 growth forecast to 1.6%, suggests a cautious approach to rate cuts.
However, risks of inflation resurgence or persistent high levels remain. Although consumer prices are expected to remain flat for a second consecutive month, certain core readings may rise, leading the Fed to carefully consider the timing and pace of rate reductions.
The inflation will not return to normal may not show slowness in the coming months, factors like declining annual wage growth peaks in immigration impacting U.S. employees’ supply may influence the pace of pay hike aligning with the Fed’s inflation target.
Treasury yields also play a role in the Fed’s decision-making, with recent fluctuations influencing the central bank’s stance on inflation and interest rates to prevent further easing of financial conditions. Both Goldman Sachs and Barclays anticipate the Fed to start cutting its key rate in the second half of next year, making two reductions to a range of 4.75% to 5%, with additional cuts expected in 2025 and 2026.
Recent Update from Fed
Fed recently said that might be interest rate will not reach zero percent for next 3 years and yes interest rate cuts may be there but on an average it can be stayed to average 3 percent for a long duration of time.
Today in the evening expect a US inflation data which will impact the next move from FED, today US 10 years Bonds cooled little bit and hover around 3.99 to 4 percent
Most of indices for Asian markets ended in green, gold and crude rates are slightly higher.