Markets See Spring Rate Cuts, The Fed Isn’t There Yet

The debt markets expect the U.S. Federal Reserve to cut interest rates in spring 2024. In contrast, policymakers believe its premature to discuss rate cuts until they see further evidence of cooling inflation. As of October, annual headline Consumer Price Index Inflation is running at 3.2% compared to the Fed’s 2% target. Fed officials are also signaling that a rate increase remains an option. However, both markets and the Fed ultimately agree that short-term interest rates will move lower in 2024.

Market Expectations

For the near term, current expectations are that rates will hold steady at the Fed’s upcoming December meeting. Beyond that, both debt and equity markets currently signal that interest rate hikes are over. The CME’s FedWatch Tool currently gives a 90% chance that interest rate cuts occur no later than May 2024, with a 60% possibility of a March cut.