Morgan Stanley’s Chief Economist Predicts Rate Cuts ‘This Year’ as Market Eyes Federal Reserve’s Next Move
This year, mirroring last year’s speculation, market observers are keenly awaiting decisions from the U.S. Federal Reserve concerning the federal funds rate, with a particular focus on potential rate cuts this year. Ellen Zentner, Morgan Stanley’s lead economist in the U.S., predicts rate reductions in the coming months. However, she cautions that the central bank has the luxury of patience, suggesting they are in no rush to make these changes.
Market Awaits Federal Reserve’s Target Rate Decisions
All eyes are on the Federal Reserve’s next moves and currently, according to the CME Fedwatch tool, the market anticipates a projected 25 basis points increase at the upcoming Federal Open Market Committee (FOMC) session. A commanding 95.3% of market predicts an increase, whereas a mere 4.7% foresee the federal target rate maintaining its current stance. This echoes remarks made by Federal Reserve Bank of Dallas President Lorie Logan on Saturday.
Addressing attendees at the American Economic Association conference in Texas, Logan stressed the necessity for the central bank to “maintain sufficiently tight financial conditions,” warning of the danger that inflation could rebound, undermining the progress achieved thus far. The head of the Dallas branch further noted:
In light of the easing in financial conditions in recent months, we shouldn’t take the possibility of another rate increase off the table just yet.
Logan’s remarks come subsequent to the FOMC’s minutes from Dec. 14-15, 2023, underscoring the Fed members’ deliberations on restoring standard monetary policy. The committee said it examined ongoing inflation pressures and their consequences for the central bank’s asset acquisition initiatives. With inflation consistently surpassing 2% for an extended period, the Fed decided to decrease the monthly rate of net asset purchases.
Economists are expecting rate reductions in the near future, particularly following Fed Chair Jerome Powell’s dovish approach during the last FOMC meeting. Powell noted at the time that the central bank is “very focused on not making the mistake of keeping rates too high too long.” Ellen Zentner, Morgan Stanley’s chief U.S. economist, anticipates rate reductions this year, she disclosed to an audience at a three-day summit in San Antonio.
“Make no mistake, they will be cutting rates this year,” Zentner told the audience. “[However,] they can be patient and they can take their time,” she added. Meanwhile, market expectations tilt towards rate cuts and a possible hike at the end of this month. The economist from Morgan Stanley predicts the initial rate reduction will take place in June. Dante DeAntonio, senior director at Moody’s Analytics, concurs with the expectation of a June 2024 rate decrease.
“It looks increasingly likely that the Fed will be able to engineer a soft landing as they have pivoted to discussing the outlook for possible rate cuts in 2024,” DeAntonio explained in a bankrate.com survey. “The Fed will likely make the first cut in June 2024, but the pace of cuts will be quite low — leaving ‘higher for longer’ intact,” the Moody’s Analytics executive added.
What do you expect the Federal Reserve will do this year? Do you expect rate cuts in 2024? Share your thoughts and opinions about this subject in the comments section below.
