Here's when the Fed is likely to start cutting interest rates, according to investment strategists (2024)

Federal Reserve Chairman Jerome Powell prepares to testify before the Senate Banking, Housing and Urban Affairs Committee on March, 7 2024.

Kent Nishimura | Getty Images News | Getty Images

WEST PALM BEACH, Fla. — The U.S. Federal Reserve is likely to start cutting interest rates by the end of the second quarter despite recent "hotter than expected" inflation data, according to Kristina Hooper, chief global market strategist at Invesco.

The U.S. economy is also likely to dodge recession as the Fed calibrates interest rate policy, she and other strategists said Wednesday at Financial Advisor Magazine's annual Invest in Women conference in West Palm Beach, Florida.

The Fed has raised borrowing costs for consumers and businesses to rein in high inflation during the pandemic era. That has pushed up rates for mortgages, credit cards, auto loans and other forms of lending.

Inflation has declined significantly from its peak in mid-2022. However, it's still well above the Fed's 2% target level.

The question has become, at what point — and how quickly — does the central bank start to cut rates in order to avoid plunging the economy into a downturn?

Fed Chair Jerome Powell said last week that the Fed may not be far off from throttling back.

Despite hotter-than-expected inflation data issued this week, the central bank is likely to start reducing borrowing costs by the end of June, with cumulative cuts of 0.75 percentage point or 1 point in 2024, Hooper said.

Here's when the Fed is likely to start cutting interest rates, according to investment strategists (1)

watch now


2024 will be the last stretch to the Fed's 2% goal, says Glenmede's Jason Pride

History may be a guiding principle, she said. The Fed last raised interest rates in summer 2023; in prior interest-rate-hiking cycles, the Fed began cutting rates about 8½ months later, Hooper said.

Jenny Johnson, president and CEO of Franklin Templeton, also expects the central bank to begin cutting rates this year, though in the second half of 2024 at Fed policy meetings in July or September.

Forecasts have changed from prior months.

Moira McLachlan, senior investment strategist in AllianceBernstein's wealth strategies group, said the firm had earlier expected five or six cumulative rate cuts this year, but now anticipates three or four.

The firm's "base case" is cumulative cuts of 1 percentage point in 2024, she said Wednesday.

Strategists expect the U.S. to dodge a recession as it navigates interest rate policy, experiencing what's known in economic parlance as a "soft landing."

"A soft landing is our best guess in terms of where we're going to be," McLachlan said.

"We're likely to avoid a recession," Hooper echoed.

"I do worry [the Fed] may be too late to start cutting," she said.

Here's when the Fed is likely to start cutting interest rates, according to investment strategists (2024)


Here's when the Fed is likely to start cutting interest rates, according to investment strategists? ›

"Based on current trends, the Fed is likely to start cutting rates this summer and reduce the target rate two to three times in 2024 — about a quarter of a point each time," says Stacy Johnson, senior portfolio manager for TIAA. "However, they will adjust as needed if the data and trends change."

When can we expect the Fed to lower interest rates? ›

Interest rates have held steady since July 2023.

The Fed raised the rate 11 times between March 2022 and July 2023 to combat ongoing inflation. After its December 2023 meeting, the Federal Open Market Committee (FOMC) predicted making three quarter-point cuts by the end of 2024 to lower the federal funds rate to 4.6%.

What is the likely effect of the Federal Reserve cutting interest rates? ›

Rate cuts would, over time, lead to lower costs for home and auto loans, credit card borrowing and business loans. They might also aid President Joe Biden's re-election bid, which is facing widespread public unhappiness over higher prices and could benefit from an economic jolt stemming from lower borrowing rates.

Is the Fed going to cut rates in 2024? ›

A Federal Reserve official on Thursday raised the possibility the central bank may not cut interest rates at all in 2024, deflating Wall Street's expectations that several reductions could be in store later this year.

What happens to investments when the Fed raises interest rates? ›

Do interest rate hikes hurt the stock market? If the Federal Reserve raises the short-term federal funds target rate it controls (as it did in 2022 and 2023), it can have a detrimental effect on stocks. A higher interest rate environment can present challenges for the economy, which may slow business activity.

Will interest rates go down in 2024 for cars? ›

Lower Auto Loan Rates Could Make 2024 a Good Time To Buy or Refinance. While market predictions are bullish on the funds rate — and by extension, auto loan rates — finally coming back down in 2024, it's still not a guarantee. Powell and others at the Fed remain committed to their target of 2% inflation.

Will CD rates remain high in 2024? ›

Projections suggest that we may see no rate increases in 2024, and that the Fed might start dropping its rate later this year, according to the CME FedWatch Tool on March 19. If the Fed rate drops, CD rates will likely follow suit, though it's up to each bank and credit union if and when that occurs.

What happens to the stock market when interest rates are cut? ›

In other words, the market's anticipation that the Fed would lower rates had a positive effect stock prices, since it assumes that a company's earnings per share and profits will rise as borrowing costs decline. In effect, lower interest rates lead to higher price-to-earnings metrics and vice versa.

What happens if the Federal Reserve wants to lower the federal funds rate? ›

If the Fed wants the federal funds rate to decrease, then it buys government securities from a group of banks. As a result, those banks end up holding fewer securities and more cash reserves, which they then lend out in the federal funds market to other banks.

What happens when the Federal Reserve decreases the reserve rate from? ›

When the Federal Reserve decreases the reserve ratio, it lowers the amount of cash that banks are required to hold in reserves, allowing them to make more loans to consumers and businesses. This increases the nation's money supply and expands the economy.

What is the interest rate forecast for 2024? ›

That means the mortgage rates will likely be in the 6% to 7% range for most of the year.” Mortgage Bankers Association (MBA). MBA's baseline forecast is for the 30-year fixed-rate mortgage to end 2024 at 6.1% and reach 5.5% at the end of 2025 as Treasury rates decline and the spread narrows.

What are the expectations for the rate cut in 2024? ›

Expectations for the number of rate cuts in 2024 have also changed dramatically. Coming into the year, investors were anticipating five cuts starting in March. That has now been scaled back to slightly favouring two cuts, with a target range of 4.75%-5.00% to close out the year.

What is the Fed forecast for 2024? ›

Projected in the prior release, Fed growth projections for 2024 increased to 2.10% from 1.40%, with the FOMC characterizing the growth pace as “solid."

Should you sell bonds when interest rates rise? ›

If bond yields rise, existing bonds lose value. The change in bond values only relates to a bond's price on the open market, meaning if the bond is sold before maturity, the seller will obtain a higher or lower price for the bond compared to its face value, depending on current interest rates.

What stocks do well when interest rates rise? ›

The financial sector has historically been among the most sensitive to changes in interest rates. With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates.

Where to put your cash after the Fed's interest rate increase? ›

The Best Places to Save Money and Earn Interest

Reap a higher return by stashing your cash in a high-yield savings or checking account or a CD ladder.

Are interest rates expected to go down? ›

Despite mortgage rates remaining stubbornly high, most housing market experts expect them to recede over 2024, assuming the Federal Reserve acts on its signaled interest rate cuts. However, whether mortgage rates fade enough to create a meaningful shift in home affordability remains uncertain.

Will interest rates go down to 3 again? ›

Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC that he doesn't think mortgage rates will reach the 3% range again in his lifetime.

What is the prime rate forecast for 2024? ›

Historical Data
June 30, 20253.55%
March 31, 20253.50%
December 31, 20243.50%
September 30, 20245.75%
21 more rows

What is the Fed interest rate forecast for 2025? ›

The median estimate for the fed-funds rate target range at the end of 2025 moved to 3.75% to 4%, from 3.5% to 3.75% in December.

Top Articles
Latest Posts
Article information

Author: Lidia Grady

Last Updated:

Views: 6435

Rating: 4.4 / 5 (45 voted)

Reviews: 92% of readers found this page helpful

Author information

Name: Lidia Grady

Birthday: 1992-01-22

Address: Suite 493 356 Dale Fall, New Wanda, RI 52485

Phone: +29914464387516

Job: Customer Engineer

Hobby: Cryptography, Writing, Dowsing, Stand-up comedy, Calligraphy, Web surfing, Ghost hunting

Introduction: My name is Lidia Grady, I am a thankful, fine, glamorous, lucky, lively, pleasant, shiny person who loves writing and wants to share my knowledge and understanding with you.