© Reuters. FILE PHOTO: An eagle tops the U.S. Federal Reserve building’s facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo
By Ann Saphir
SAN FRANCISCO (Reuters) – The annual rotation on the U.S. Federal Reserve’s interest-rate-setting committee means its 2024 voting members lean slightly more hawkish than the outgoing group from 2023 – but that won’t budge the outlook for a pivot to interest-rate cuts next year.
Get ready for 2024! According to analysts, Fed rate cuts seem inevitable based on the current economic climate. If inflation falls more quickly than expected, Fed policymakers are likely to reduce rates even more than the three-quarters-of-a-percentage point implied in fresh projections published last week.
Recent reports of cooling price pressures and easing labor markets over the past year have led to a more dovish center of gravity at the Fed’s policymaking table. Even previously hawkish policymakers like Fed Governor Christopher Waller have backed away from their earlier support for rate hikes.
Fed Chair Jerome Powell’s comments about the timing of rate cuts have sent bond yields plummeting and led to markets pricing in rapid-fire policy rate reductions starting in March. Even if cuts come later and more gradually, the direction of those bets still tracks the Fed leader’s changed tone.
According to SGH Macro Advisors’ Tim Duy, signaling easier policy ahead is an effort to head off disinflationary dynamics as lower inflation filters through the economy. There is also another rationale for rate cuts next year – holding the benchmark rate steady drives real borrowing costs up, so the Fed must dial back its policy rate to prevent overtightening.
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