What To Expect On Interest Rates For The Remainder Of 2024
Simon Moore

The Federal Open Market Committee has three scheduled meetings remaining in 2024 and markets expect interest rates to be cut at all of them. Statements from FOMC policymakers have generally become more dovish.

This is in part a response to economic conditions. Inflation has eased substantially and the labor market is weakening somewhat, albeit from a period of very low unemployment. Economic theory suggests both factors typically call for less restrictive monetary policy when compared to current levels.

FOMC Policymakers Continue To Signal Cuts Are Coming

There are 12 voting members of the FOMC. Not all members make frequent public statements, but those who do have expressed a similar theme of looking to ease restrictive monetary policy because inflation is expected to return to target levels.

Of course, Federal Reserve Chair Jerome Powell exerts significant influence on monetary policy. In an August 23 speech, he said that: “the time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

FOMC voting member and Atlanta Fed President Raphael Bostic recently released a statement that was also more dovish than many of his recent comments. He wrote on September 4 that, “we must not maintain a restrictive policy stance for too long. I believe we cannot wait until inflation has actually fallen all the way to 2 percent to begin removing restriction because that would risk labor market disruptions that could inflict unnecessary pain and suffering.”

New York Federal Reserve President, John Williams made similar comments in a September 6 speech: “with the economy now in equipoise and inflation on a path to 2%, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate.”

On August 10, Fed Governor Michelle Bowman said, “My baseline outlook is that inflation will decline further with the current stance of monetary policy. Should the incoming data continue to show that inflation is moving sustainably toward our 2% goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive on economic activity and employment.”

As such, FOMC policymakers appear to be sending a clear and relatively unified message that interest rates can be expected to move lower from current levels.

How Much Easing Is Needed?

Assuming the FOMC does ease monetary policy over the coming months as broadly expected, the question is how much. The FOMC will provide information on this in an update to the Summary of Economic Projections. This will include expectations for the federal funds rate at the end of 2024. An update here will come with the FOMC’s decision on September 18.

Fixed income markets as assessed by the CME’s FedWatch Tool are currently looking a federal funds rate reduction of 0.75% to 1.5% by December 2024. Short-term rates are expected to end the year at a little more than 4%. Should this forecast hold, rates would be cut at each of the FOMC’s remaining meetings in September, November and December. There is the possibility of larger 0.5% interest rate reductions in at least one of those meetings, and possibly two in the most dovish case.

The Remaining 2024 FOMC Meeting Schedule

The FOMC will announce interest rate decisions at its three remaining 2024 meetings on September 18, November 7 and December 18. The decisions will be announced at 2 p.m. ET and followed 30 minutes later by a press conference with Powell. The September and December meetings will also include an update to the Summary of Economic Projections. In addition, the FOMC typically release meeting minutes three weeks after each event. The FOMC also can adjust interest rates whenever it choses. It has historically adjusted interest rates outside of its typical meeting schedule during times of economic stress.

What To Expect

FOMC officials have now broadly communicated that interest rate cuts are coming. Fixed income markets expect this will happen. It seems likely all of the remaining FOMC meetings in 2024 will result in rate cuts, according to fixed income futures.

The questions now are how sharply will rates be cut and what is the interest rate level at which the FOMC would consider policy to no longer restrictive? For now, broadly, the assessment of markets is that rates may continue to fall steadily through 2025, ending at around 3%. However, this medium-term projection is subject to considerable uncertainty. Nonetheless, falling short-term interest rates for the remainder of 2024 and continuing into 2025 appear likely.

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Simon provides an outsourced Chief Investment Officer service to institutional investors. He has previously served as Chief Investment Officer at Moola and FutureAdvisor, both are consumer investment startups that were subsequently acquired by S&P 500 firms. He has published two books and is a CFA Charterholder and educated at Oxford and Northwestern. Articles are informational only, not investment advice.

 

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