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Wall Street’s Take on the Fed’s Next Move: Rate Cuts in 2024?

As 2024 approaches, the Federal Reserve’s interest rate decisions are poised to be pivotal for investors, businesses, and consumers alike. With the Fed having successfully navigated inflation pressures without severely impacting the labor market or the broader economy, Wall Street is abuzz with predictions of significant rate cuts next year. These anticipated moves will be crucial, not just for the stock market valuations but also for the cost of consumer loans, including mortgages and auto loans.

Here’s a summary of various Wall Street predictions for the Fed’s rate cuts in 2024:

  1. UBS: A Bold Prediction of 275 Basis Points Cut UBS foresees a US recession in 2024, prompting the Fed to slash rates by 275 basis points, equating to a staggering 11 interest rate cuts. The Swiss bank anticipates these cuts to commence as early as the Fed’s March FOMC meeting.
  2. Macquarie: Expecting a 225 Basis Points Reduction Citing tightened monetary conditions and slowing rent inflation, Macquarie projects a 225 basis points cut in rates. The firm notes that current monetary conditions are tighter than they appear, necessitating these cuts.
  3. ING Economics: A More Conservative 150 Basis Points Cut ING anticipates a 150 basis points reduction, driven by moderating inflation, a cooling job market, and waning consumer spending. ING’s chief international economist, James Knightley, expects these cuts to start in the second quarter and continue into 2025.
  4. Market Consensus: A Moderate 125 Basis Points Cut Futures markets, as per the CME’s FedWatch Tool, predict a more moderate 125 basis points cut, which would adjust the Fed Funds rate to a range of 4.00%-4.25%.
  5. Barclays: A Cautious 100 Basis Points Cut Barclays anticipates the Fed to be cautious in rate cuts, expecting a 100 basis points reduction in 2024, followed by another similar cut in 2025. The firm reasons that the economy’s resilience may lead to a slower pace in cutting rates.
  6. Federal Reserve’s Own Projection: Minimal 25 Basis Points Cut The Fed’s current median projection indicates a mere 25 basis points cut for the entire year of 2024. This conservative stance could mean the market is overly optimistic, potentially leading to market volatility.

The upcoming FOMC meeting will offer more clarity, as the Fed is expected to update its dot plot chart. This update may shift the median forecast for interest rate cuts in 2024 to 50 basis points.

In conclusion, while there’s consensus on rate cuts, the magnitude and timing vary among analysts. As 2024 unfolds, these predictions will be critical for market players, influencing decisions across various sectors. The key takeaway for entrepreneurs and investors is to stay informed and adaptable to these monetary policy changes.