Will the Fed Cut Interest Rate in 2024?

In the complex world of economic speculation and financial foresight, one question looms large on the horizon: “Will the Fed Cut Interest Rate in 2024?” It’s like a big puzzle involving the economy, predictions, and what’s happening in the world. In this article, we are trying to figure out the factors that might lead to the Federal Reserve making this decision in 2024.

Introduction

On 13^th December 2023, the Federal Reserve released the Summary of Economic Projections. The Summary stated that the Federal Open Market Committee (FOMC) meeting was held on December 12-13, 2023. During the meeting, the members/participants submitted their projections for real gross domestic product (GDP) growth, unemployment, and inflation.

The projections were made for each year from 2023 to 2026 and also for the long run. Each member/participant made their projections based on the information they had at the time and what they thought the government should do to help the economy. The longer-run projections are based on the value of each variable expected to converge, over time, with suitable monetary policy and expecting without any unforeseen happenings. The government wants the economy to have as many jobs as possible and for prices to stay stable.

The Suitable/ Appropriate Monetary policy is defined as the ‘Future Path of Policy’ which each participant/member considers to be most likely to promote economic performance and inflation, consistent with its interpretation of the statutory obligation to promote maximum employment and price stability. 

This summary of projections raises one of the important questions for investors, the market and economists, whether the Fed is ready to ease in 2024. Is there any threat or factor which the US economy should watch in the coming months? We will delve into this further in the article

Will the Fed Cut Interest Rate in 2024?

There is only one answer and it’s a clear straight one Yes.

Yes, the Federal Reserve could cut interest rates in 2024, and that would be good for stocks. And 2024 is an election year, which is a good year for stocks. 

Does this mean that inventories will increase in 2024?

We’d like to say may be “almost”, but since there would be a fierce election campaign, and there will or may probably be issues outside the U.S., there may be some disturbances or say fluctuations. 

Meanwhile, many of the factors that should support stock prices and the economy now and next year are well in place. It is expected to continue in the same way. 

Now, the question arises what are all the factors that are included in this? They are 

Resilient Economy:

Many experts, analysts, and economists (including Wall Street and the Fed), were expected the recession to occur in 2023, but, all are taken by surprise as it didn’t occur. Still, some believe it will happen next year. The unemployment rate remains below 4%. Inflation is slowly coming into the Fed’s target level (including the Fed’s gauge inflation)

Falling of Crude Oil Prices

The price of Crude oil fell more than 24% to $71.78 on December 15^th and reached $68.95 on December 12^th.  It has to be noted that, briefly, West Texas Intermediate crude oil, has reached $95 a barrel in September 28^th.

Federal Rate Cuts: 

Well as we said there will be federal rate cuts. But, how fast or soon it may happen is completely another question which only the Fed can answer. 

Many Financial markets are expecting a rate cut in March. But, we believe (as well as hope) that the Fed doesn’t want to act that quickly or hastily unless the economy is in bad shape. So we expect the rate cut in the second half of 2024 (i.e. somewhere between June – September). 

Yield and Interest Rate:

The yield on 10-year government bonds reached 5% in late October. But, now the yield has started falling as of 18^th December 2023 (i.e. previous closing price) was 3.929%. This means the interest rates have already started falling. This is also reflected in the Mortgage rates which are now below 7% after peaking at 8% in early October. 

Things to Watch Out

However, there are a few things to be aware of that may take place in the next month or two  

Oil and Gasoline Prices:

Those who follow these indicators know that the upward trend is very strong. Oil and gasoline prices, which have fallen since September. This trend may not continue and oil prices will not fall forever.

Many may be aware that the Production typically begins after the new year, when refineries in the northern hemisphere begin producing gasoline for the summer driving season.

Additionally, the Organization of the Petroleum Exporting Countries (OPEC) wants member countries to cut production to keep oil prices high. It is unclear whether all OPEC members and cartel members will comply with the rules. 

Real Estate Sector/Another Asset Bubble?

Commercial and residential real estate markets have been weak throughout the year. The question is whether a real estate crisis like the one that occurred in 2008 could damage the banking system and derail the economy. 

Is there another Asset bubble around the corner? Though this time it will be little different is it around the corner? Well only time can answer this question 

Slow down, Layoffs and Geopolitical Tensions:

There are signs of a slowdown in the US economy. News of layoffs has become more common, especially in the high-tech sector, and with it, business collapses. 

Last but not least, the USA cannot ignore Geopolitical tensions.

Conclusion – Our Perspective 

These are some of the important issues/ things which US economy has to watch out for in coming months. However, the present scenario is so uncertain that no one can predict how the economy and market are going to react in coming months. Appropriate policy measures along with proper implementation may sail the U.S. economy without a scratch of recession in coming months.

In otherwords, the U.S. economy faces a dynamic landscape with potential federal rate cuts, economic indicators, and external factors at play. Therefore, the implementation of appropriate policy measures becomes crucial to safeguard against a recession and ensure a resilient economic future.

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