Year of Rate Cuts Forecast for 2024 as Fed Pivots
(11 January 2024 – Global) After implementing the most aggressive monetary tightening campaign in a generation following the pandemic, central banks globally are set to switch from hawkish to dovish monetary policy settings as inflation gradually cools.
Central banks in Brazil the Czech Republic and others have already started winding down official cash rates Bloomberg reports.
The US Federal Reserve will lead the pivot for developed countries after policy makers signalled 75 basis points of cuts in 2024to 4.6 percent, marking an abrupt shift from earlier warnings that rates could still go higher through much of 2024.
In contrast to the Fed, European Central Bank (ECB) officials are reticent on the topic of rate cuts.
“Central banks are looking forward to a victory lap as inflation tracks back to target with only a modest blow to growth. Markets cheering the policy pivot will provide the appropriate soundtrack. The reality, though, is that monetary policy didn’t have much to do with post-pandemic price pressure on the way up and can’t claim too much of the credit on the way down. One takeaway is that central bank tools are narrow, and the sources of inflation risk wide” stated Bloomberg Global Chief Economist, Tom Orlik.
“The Fed has reached the end of its hiking cycle. With core inflation looking to be on track to approach Fed’s two percent target, by some key metrics, in March 2024, the FOMC likely will be able to respond to faltering growth and rising unemployment with a first rate cut then. We expect another 100 bps of cuts in the rest of the year, bringing the upper end of fed funds rates at the end of 2024 to 4.25 percent” commented Bloomberg Chief US Economist, Anna Wong.
“The ECB has finished hiking. Underlying inflation is falling, surveys are pointing to a significant deterioration in activity and credit extension is weaker than it was in the depth of the euro crisis. In addition, the mood music has changed globally. Unless the economy were to tank, the ECB will still need time to be satisfied that inflation is on the right trajectory. We expect the first cut in June 2024. However, the risks are heavily skewed toward earlier action” said Bloomberg Economics Senior European Economist, David Powell.
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