A former Central Bank official is expecting rate cuts in 2024.
Former Dallas Fed President Robert Kaplan issued his outlook on the U.S. economy and forecasted a prolonged fight with inflation that would see the United States make its first rate cut in the second half of 2024, Forexlive reported.
The Federal Reserve has approved 11 rate hikes since kicking off its monetary policy cycle in March 2022, raising its fed funds rate from near-zero during the pandemic to a current range of 5.25% to 5.5%, The Dallas Express previously reported.
Although interest-rate-sensitive companies like financial institutions, commercial investment firms, and other leveraged businesses have struggled to adapt to the higher interest rate environment in the U.S., Kaplan suggested that fed officials are unlikely to jeopardize a soft-landing by approving another interest rate increase next month.
Instead, Kaplan believes the Federal Open Market Committee will leave the Central Bank’s benchmark rate unchanged during the two-day policy meeting from September 19-20.
Kaplan estimates that by the second quarter of 2024, Fed members will find it appropriate and not unreasonable to cut rates. While not a guarantee, he believes a mid-2024 forecast is as good an estimate as any at this point, Forexlive reported.
Despite not being a fan of the Fed’s data-centric approach to monetary policy, Kaplan said economic resilience could cause the Fed to hold rates higher for longer.
Kaplan is not the only one expecting rate cuts next year. Economists with Goldman Sachs have also penciled in rate cuts in the second half of 2024, regardless of whether the U.S. economy has entered a recession by that time.
“The cuts in our forecast are driven by this desire to normalize the funds rate from a restrictive level once inflation is closer to target, not by a recession,” Goldman Sachs chief U.S. economist David Mericle said in a new research note published Sunday, Yahoo Finance reported.
Fed participants project a Fed funds rate of 5.5% to 5.75% by the end of 2023, according to the Fed’s Summary of Economic Projections published in June.
This would suggest that one additional quarter-percentage-point increase is still in the policy pipeline for this year.
“When people are writing down rate cuts next year … it just is a sense that inflation is coming down, and we’re comfortable that it’s coming down, and it’s time to start cutting rates,” Fed Chairman Jerome Powell said during a recent press conference.
“There’s a lot of uncertainty between what happens … in the next meeting cycle, let alone the next year, let alone the year after that,” he said.
