The market anticipates that the US Federal Reserve will begin reducing interest rates in May or June 2024 as a result of the robust economy.
Market players are anticipating the US Federal Reserve’s impending two-day policy meeting on January 30 with great vigor. Even though most people think interest rates will stay the same at this meeting, everyone is watching for signs that rate cuts are about to begin. With the US employment market showing no signs of weakness and inflation persistently outpacing the central bank’s 2% objective, the general consensus is that the Federal Reserve may begin a program of rate decreases in May or June.
Investors are anxiously waiting for Fed Chair Jerome Powell to remark on the future of inflation as the Federal Reserve prepares for its first FOMC meeting of 2024. Both the policy statement and Powell’s press address after the meeting were criticized by Coin Gabbar for their word choice. Officials have recently addressed worries about hasty choices by indicating a measured and careful approach to any rate decreases.
According to Jasani, the first rate decrease might happen in May or June, and there would be a complete reduction of 75-100 basis points in 2024. According to Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, market participants anticipate no change to interest rates at the next meeting, with rate decreases likely to start in May. Sheth thinks rate reduction will happen in the second half of 2024, so it’s important to keep an eye on the Fed’s actions and comments. This is especially true in light of the strong 3.3% GDP growth in the quarter ending in December 2023.
The market may have already priced in a continuation of current interest rate policies, dampening the expected immediate effect on market mood, notwithstanding the meeting’s buildup to it. According to Gaurang Shah, a senior vice president at Geojit Financial Services, the market response was not very significant, and the Fed’s words would have to be quite powerful to cause significant moves, according to Shah.
Because it is so hard to tell when the Fed will start cutting rates, Shah says investors should focus on domestic factors. “It is difficult to preempt as to when they will start cutting the rates, but I think we should concentrate more on our domestic data points,” said Shah.
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