Wall Street Banks Readjusts 2024 Interest Rate Predictions After Fed's Dovish Turn

Wall Street is recalibrating its 2024 interest rate forecasts following a significant dovish pivot from the Federal Reserve.

This change in stance, indicating potential rate cuts, has led to a notable shift in market dynamics, with investors and forecasters adjusting their expectations for the upcoming year.

What Happened: During the recent Federal Open Market Committee (FOMC) meeting, Jerome Powell, the Fed chairman, held interest rates steady, continuing the trend of the past three policy meetings.

Despite this, Powell's comments on potential inflation reversals and subsequent rate cuts have shifted the focus to the timing of these cuts in 2024.

As reported by Business Insider, the Fed's projections show a decrease in the expected end-of-2024 interest rates to 4.6%, down from 5.1% in September, hinting at multiple rate cuts next year.

There is a changing consensus on Wall Street, primarily driven by the Fed's tendency to lag in setting interest rate policy. This is due to officials relying heavily on delayed economic data to inform their rate decisions.

Bank of America Corp BAC's analysis after the FOMC meeting suggests a 90% likelihood of a Fed rate cut by March. "The December FOMC was clearly dovish, leading markets pricing about 90% chance of a Fed rate cut by March," Bank of America said in a note. 

Market Consensus Versus Fed Projections

Contrary to the Fed's projections, the market consensus, according to the CME Fed Watch Tool, anticipates more aggressive easing, with at least six 25-basis-point rate hikes in 2024, an increase from the five cuts expected before the Fed meeting.

Here is Wall Street's perspective on the Federal Reserve's shift toward dovishness and its implications for interest rates in 2024.

Also Read: Wall Street Braces For 2024 Recession: Economic Growth To Slow, Markets To Rise, Say Bullish Firms

Goldman Sachs' Forecast On Rate Cuts

Financial giants like Goldman Sachs GS have revised their forecasts in response to the Fed's dovish pivot. Goldman Sachs predicts earlier and faster rate cuts, expecting three consecutive 25 basis point cuts in the first half of the year.

"In light of the faster return to target, we now expect the FOMC to cut earlier and faster. We now forecast three consecutive 25 basis point cuts in March, May, and June to reset the policy rate from a level that the FOMC will likely soon come to see as far offside," Goldman Sachs' economist Jan Hatzius said.  

JPMorgan's Revised Interest Rate Outlook

JPMorgan Chase & Co JPM foresees the first rate cut occurring in June, sooner than previously thought, with a target range 125 basis points lower by year-end.

"With the Committee signaling that further inflation progress will be sufficient for easier policy, we now look for a first cut in June (previously July) and for a target ranger 125 basis points lower by year-end," JPMorgan economist Michael Feroli said. 

Macquarie's Aggressive Rate Cut Projections

Macquarie Group Ltd, known for its bold predictions, expects nine 25-basis point rate cuts in 2024, translating to significant yearly easing.

"Our policy view is unchanged. We believe the rate hike cycle is complete, but that rate cuts are unlikely until 2Q24. We see significant easing in 2H, however, and overall cuts of 225 bps in 2024 driven by a continued moderation in core inflation and an undesirable rise in unemployment," Macquarie said in a note.

Now Read: From Bearish To Bullish: Major Analysts Predict US Stock Market's Performance In 2024

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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