Fed Interest Rate Cuts Unlikely Until 2024, Experts Predict
Groundhogs may have predicted six more weeks of winter in 2023, but forecasters at Goldman Sachs have an even grimmer outlook — ten more months of high interest rates.
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The Federal Reserve raised interest rates eight straight times since March 2022 in an effort to bring down record rates of inflation. The latest, and also smallest, spike came on Feb. 1 with an additional quarter point, bringing the margin from 4.5% to 4.75%. And they’re not stopping yet.
The Fed revealed in their Feb. 1 statement they will keep upping rates until inflation is hovering around 2%. Currently, the U.S. is coming in at 6.5%, according to the latest Consumer Price Index.
In terms of a timeline for when rates will finally come down, that has been less clear. However, financial analysts with Goldman Sachs believe the Fed won’t move the needle downwards until at least 2024, Business Insider reported.
Goldman Sachs Chief Economist Jan Hatzius predicted rates will keep rising above 5% throughout 2023, and stay there throughout the year. That 5% threshold hasn’t happened since the critical years of 2006-2007, right before the country reached a full-blown recession, per MarketWatch. Much of Hatzius’ analysis hinged on the better than expected jobs report for January showing the U.S. adding 517,000 jobs, much more than the anticipated 187,000 benchmark.
Because one of the Fed’s dual guidelines to bring down rates is keeping unemployment low (the other being more traditional rates of inflation) — and because the job market remains overly healthy — the central bank will go harder on the other condition in order to balance the scales, Hatzius theorized.
Not everyone agrees with Hatzius’ take, however — Market Insider reported the CME Group believes rate cuts will come towards the end of 2023, especially if inflation keeps trending downwards. Another big factor will be how the current debt ceiling crisis will be handled ahead of the June deadline.
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Interest rates are a critical cornerstone of a robust economy. Some fear that by continuing to increase rates at record levels, Americans will be less likely to buy or invest, which could hamper money flow. Fox Business reported on a survey where many Americans said they will stop buying vehicles in 2023 given current interest rates. This, of course, could have a domino effect trickling into other areas such as the housing market.
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