Wednesday 20th is an important date for investors, as the Fed meeting will be held, which will determine the new level of Fed funds rates. Most of the analysts interviewed expect rates to remain stable, as also confirmed by a survey conducted by Reuters. However, some economists believe that there could be a rate hike at the next meeting on October-1 November 31. In general, most experts expect a rise by the end of the year.
This possibility is supported by the fact that the Fed paused its policy of raising rates in June, but then made an increase in July. It is thought that there could be another pause in September before a final rise in November. This forecast provides some stability to the financial markets, even if there are differing opinions.
The projections on the performance of the economy
Recent inflation data showed an annual increase of 3.7% in the month of August, exceeding analysts’ expectations. Meanwhile, the unemployment rate is expected to rise to 4.3% by 2024, according to a survey conducted by Reuters among economists. Despite this, the labor market is still considered stable. In addition, experts interviewed by Reuters predict that housing and rental prices will remain high. Also worth noting is the surge in oil prices, following the decision of OPEC Plus to reduce production until the end of the year. Added to this situation are also economic data from China, which seem to indicate an improvement
.
Bank of America recently revised upwards its estimates of US GDP for the entirety of 2023, going from the previous 1% to 2%. The forecasts for the unemployment rate were lowered to 3.8% from the original 4.1%, while inflation was adjusted downwards, from +3.9% in June to +3.7%. Furthermore, according to a recent report by Goldman Sachs, the Federal Reserve will also adjust to these estimates by revising GDP growth upwards (+1.1% to +2.1%), while moderate downward revisions are expected for the unemployment rate (-0.2% to 3.9%) and core inflation (-0.4% to
3.5%).
Overall, the economic outlook is promising and indicates an improvement in the short term. However, it remains essential to closely monitor the evolution of the situation
.
Analysts’ forecasts of Federal Reserve decisions for the November meeting
Forecasts for the US economy seem to leave little doubt that there will be a rise in interest rates in November (excluding a pause in September). However, Goldman Sachs economists prefer not to sing victory until they have won it: “In the month of November, we expect that there will be better news thanks to a further balance in the labor market. Inflation and the decline in GDP in the fourth quarter will convince more participants that the Federal Open Market Committee (FOMC) can avoid a final rate hike this year, as we believe it will eventually do. However, we expect the ‘dot plot’ to show a narrow 10-9 majority still ready for a further increase, if only to remain flexible. In the period 2023-2026, we expect the midpoint of rate estimates to show a path of 5.625%/4.625%/3.375%/
2.875%.”
Martin Van Vliet, Robeco’s global macro strategist, is less optimistic, stating that “a further increase in rates while core inflation continues to decline would help convince the market that the Federal Reserve is serious about achieving the 2% inflation target.” Otherwise, “if rates were not raised, operators could anticipate future cuts in reference rates, causing a premature easing of financial conditions. This would be undesirable for the Fed, damaging its credibility in the fight against inflation and would be difficult to
repair.”
Sean Shepley, senior economist at Allianz GI, also says that the monetary tightening process is not yet complete. Regarding inflation, the economist warns that we should not trust: “Often, the fall in inflation after a peak has been interrupted by episodes of recovery, such as the one threatened by the recent increase in the price of oil. For this reason, we believe it is likely that the Fed will keep interest rates unchanged next week and that its forecasts will continue to indicate a further increase before the end of the
year.”
Fed Rates Outlook 2024: A Professional Analysis
Predicting whether the Federal Reserve will be more aggressive or more cautious in 2024 becomes increasingly difficult as the time horizon moves forward. However, economists and analysts are trying to piece together some solid projections
.
According to Goldman Sachs analysts, “gradual decreases in interest rates are the right basis for starting 2024.” However, these cuts should not be taken for granted, because “the effects of rising interest rates have now been overcome and the economy does not need a reduction in rates to avoid a recession.” In other words, Goldman Sachs experts believe that the US economy can continue to grow at a slower pace even without monetary interventions. Any gradual rate cuts, compared to the current levels of restriction, will depend on the continuation of the slowdown in inflation towards the
set targets.
Robeco’s analysts, on the other hand, start from different premises but come to similar conclusions, predicting the first rate cut in June 2024. However, it won’t just be lower inflation that will “force the Federal Reserve’s hand,” according to them. The conditions of slowing economic growth and especially the conditions of the labor market will determine this choice. We should also keep an eye on the trend in oil prices, because if their growth trend continues, it could have negative repercussions on various economic sectors as well as hindering the fall in inflation and the intentions of the
Federal Reserve.
In conclusion, scenarios for Federal Reserve interest rates in 2024 are subject to varying variables and opinions. Analysts try to bring together key elements to offer projections based on detailed analysis. Despite differing viewpoints, it can be said that the focus will be on inflation, economic growth, and labor market conditions to determine the Federal Reserve’s future interest rate actions
.
