The Fed’s higher-for-longer strategy on interest rates is slowly crumbling

Investors are feeling bullish that the Federal Reserve will begin to cut interest rates in the first half of next year, despite Fed Chair Jerome Powell and other officials saying they’re not considering rate cuts just yet. Still, some think rate cuts could come as early as the first quarter.

The latest inflation figures have been encouraging, and real-time forecasts show that economic growth has slowed dramatically since the summer as the year comes to a close — a clear downshift from the red-hot pace of growth in the third quarter.

Rate Cuts

There is growing confidence that rate cuts are only a few months away, with a roughly 44% chance of that first cut coming in March, according to futures.

Keet Rates Steady

The Fed has kept rates steady for periods of time before beginning to cut. At one point, the Fed held its benchmark lending rate steady for more than a year starting in the summer of 2006.

But if the predictions of a March cut bear out, or even a rate cut in May, so much for the Fed’s higher-for-longer strategy.

Higher-for-long-enough

“Now we’re moving into higher-for-long-enough,” Diane Swonk, chief economist at KPMG, told CNN in an interview.

Whenever the Fed begins to pare back its key interest rate, the pace will likely be gradual in the beginning, and it’s clear there won’t be a return to ultralow interest rates.

About E. J. McKay

E.J.McKay is a Shanghai-headquartered investment bank with a special focus on mergers & acquisitions. We are one of the most long standing independent investment banks in China, with core business of mergers & acquisitions and financing advisory.