Top Line
A senior Federal Reserve policy official said Tuesday that he doesn't expect interest rates to fall in 2024, dealing a new blow to widespread market expectations for interest rate cuts to stimulate the economy in the near future and dampening optimism from the Biden administration that cuts will come ahead of the presidential election in November.
Federal Reserve Governor Michelle Bowman doesn't expect interest rates to fall this year.
AFP via Getty Images
Key Facts
Michelle Bowman, one of the seven Federal Reserve governors and one of 12 voters on the Federal Open Market Committee, said she doesn't expect interest rates to fall until “the next few years.”
A “deterioration” in inflation and the labor market is needed as evidence that the Fed needs to cut the federal funds rate more quickly from its 23-year high of about 5.4%, Bowman added during a question-and-answer session at Policy Exchange, a London think tank.
Bowman warned that “we remain prepared to raise rates if inflation stagnates or even reverses,” reiterating the Fed's commitment to its long-standing 2 percent inflation target (the Fed's preferred inflation measure is 2.8 percent).
Bowman is considered one of the most hawkish of U.S. central bank governors, but his forecast runs counter to Fed staff expectations of one rate cut by the end of 2024, while investors are expecting two or more cuts by the end of the year, according to futures contract trading data tracked by the CME FedWatch tool.
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Will interest rates fall before the election?
Bowman's cautious stance raises further questions about whether the first U.S. interest rate cut since 2020 will come at one of the two remaining Fed meetings before the election. The timing of the first cut by the Fed, which operates independently of the federal government, could affect public perception of the economy under President Joe Biden, who earlier this year pledged to lower interest rates by the end of 2024. The rate hike is being implemented to further tame inflation, which has been largely unpopular but unwelcome as it makes everything from mortgages to student loans more expensive to borrow. Markets are pricing a roughly 66% chance of interest rates falling by November, and prominent business figures such as private equity billionaire and President Joe Biden confidant David Rubenstein and Goldman Sachs CEO David Solomon expect no cuts before the election, while others, including economists at JPMorgan Chase and Citigroup, are arguing for a summer cut.
tangent
You don't have to look far to find examples of warnings about the possibility of (literally) cutting interest rates too soon. The Bank of Canada cut interest rates for the first time since 2020 earlier this month, but on Tuesday it announced that inflation unexpectedly rose to 2.9%, well above the 2.6% forecast by economists.
References
BloombergBloomberg ForbesWhen will interest rates fall? Fed keeps rates on hold, hints at only one cut this yearBy Derek Saul
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