Another Rate Hike Coming In 2024? Macquarie Economists Reverse Forecast: Warn Of 'Increasingly Ominous' Policy Rate Change

The economic outlook for 2024 is taking an unexpected turn as economists at Macquarie have revised their predictions for interest rates, now suggesting a potential hike.

What Happened: In a recent note, Macquarie’s strategists indicated that the likelihood of a Federal Reserve interest rate cut in 2024 is minimal, with the possibility of an interest rate hike, reported Business Insider.

The economists had previously projected a series of significant rate cuts, driven by a slowdown in core inflation and a concerning rise in unemployment. However, the economic landscape has since shifted, with signs of inflation rebounding and a resilient U.S. economy, primarily fueled by consumer activity.

“Fresh U.S. data has prompted our U.S. economist to push out his projection of the start of the Fed’s easing cycle to 2025. We also don’t rule out that the next change may be a hike, which would prompt a new wave of broad-based U.S. dollar strength,” Macquarie said in a note on Monday.

The recent release of first-quarter GDP growth and PCE inflation data has further indicated persistent inflation and strong corporate earnings, suggesting a solid foundation for the U.S. economy.

See Also: Federal Reserve Meeting Preview: High Interest Rates ‘Need More Time To Work,’ Bank of America Says

These developments have led to a notable change in interest rate forecasts, with the Federal Reserve itself suggesting that its initial projection of three interest rate cuts for the year could diminish to just one or even none.

“We expect, in any case, that the Fed’s communications after the FOMC meeting this week will have a uniformly hawkish tone, conveyed primarily through the Statement,” Macquarie said.

“What is increasingly ominous too is the prospect that the next policy rate change may be a hike, even if the policy bias at the Fed is unchanged. Even if stock investors ignore that – on the premise that it would be just an offset to better nominal growth in the U.S. – the threat of a hike certainly would prompt a new wave of broad-based USD strength,” Macquarie said.

Why It Matters: This shift in interest rate forecasts is in line with recent developments in the Federal Reserve’s policy. Federal Reserve Chair Jerome Powell recently hinted at the possibility of a prolonged period of restrictive monetary policy, leading economists to anticipate a “higher for longer” approach.

Despite recent inflation surprises, the Federal Reserve has not shown confidence in considering interest rate reductions, leading to a scenario of higher-for-longer interest rates, as highlighted by Bank of America’s U.S. economist Michael Gapen.

This decision has sparked a debate over its potential impact on the U.S. economy, with concerns raised about the possibility of maintaining high-interest rates throughout 2024.

The most recent Federal Reserve rate hike took place during the FOMC Meeting on Jul. 26, resulting in a 25 basis point increase in the Federal Funds Rate, which rose from 5.25% to 5.50%. Following this adjustment, the S&P 500 was at 4,566 on Jul. 26.

However, the index experienced a sustained decline until Oct. 27, hitting a low of 4,117. Subsequently, there was a significant resurgence in the S&P 500, reaching a peak of 5,254 on Mar. 28. As of the present, the index is trading at 5,116.

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