Federal Reserve Chairman Jerome Powell prepares to testify before the Senate Banking, Housing and Urban Affairs Committee on March 7, 2024.
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WEST PALM BEACH, Fla. – The Federal Reserve is expected to begin cutting interest rates by the end of the second quarter, despite inflation data recently being “higher than expected,” according to Kristina Hooper, chief global markets strategist at Invesco.
The U.S. economy also should avoid recession as the Fed adjusts its interest rate policy, she and other strategists said Wednesday at Financial Advisor Magazine’s annual Invest in Women conference in West Palm Beach, Florida.
The Fed has increased borrowing costs for consumers and businesses to curb high inflation during the pandemic. As a result, interest rates on mortgages, credit cards, car loans and other forms of lending have risen.
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Inflation has fallen significantly since its peak in mid-2022. However, it is still well above the Fed’s target of 2%.
The question arises: When – and how quickly – will the central bank start cutting interest rates to prevent an economic downturn?
Fed Chairman Jerome Powell said last week that the Fed may not be far from tapering.
Despite higher-than-expected inflation data released this week, the central bank will likely begin cutting borrowing costs by the end of June, with cumulative cuts of 0.75 percentage points, or 1 point in 2024, Hooper said.
History could be a guiding principle, she said. The Fed last raised interest rates in the summer of 2023; In previous rate hike cycles, the Fed began cutting rates about 8½ months later, Hooper said.
Jenny Johnson, president and CEO of Franklin Templeton, also expects the central bank to begin cutting interest rates this year, but in the second half of 2024 at the Fed’s policy meetings in July or September.
The forecasts have changed compared to previous months.
Moira McLachlan, senior investment strategist in AllianceBernstein’s wealth strategy group, said the firm previously expected five or six cumulative rate cuts this year, but now expects three or four.
The company’s “base case” assumes cumulative cuts of 1 percentage point in 2024, she said Wednesday.
Strategists believe that by managing interest rate policy, the U.S. will avoid recession and experience what is known in economic parlance as a “soft landing.”
“A soft landing is our best guess as to where we will be,” McLachlan said.
“We will probably avoid a recession,” Hooper reiterated.
“I’m worried [the Fed] “Maybe it’s too late to start cutting,” she said.
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2024-03-14 14:53:15
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