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Why One Bank Expects Massive Fed Cuts In 2024
UBS has a bold forecast for the funds rate in 2024.
In a year-ahead outlook piece dated November 13, the bank suggested the Powell Fed may cut rates by 275bps next year. At least some of the cuts would have to be large. You'd need 11 "regular" cuts to get to 275bps. "These" may indeed "go to 11," but there aren't that many policy meetings in a year.
To call UBS's forecast out-of-consensus would be an understatement. I'm not sure what "consensus" actually is for Fed cuts in 2024 (this being yea
An underlying assumption of the call is that Powell sees the world the same way Bernanke and Yellen do. I don’t necessarily think that’s the case and believe Powell will be less eager than either of his predecessors to push for lower rates at the first sign of macro weakness.
Not really. The analysis dates back to 1980. You can’t analyze easing cycles (plural) under Bernanke and Yellen because with the exception of four years (2006-2008 and 2016-2018) their entire tenures were just one long accommodation cycle.
The availability of labor will be stymied by continued pressure on immigration levels. It will get much worse if Trump returns to office – Steven Miller rolls out the plans he has already laid out for everyone to read.
How do higher for longer interest rates help? I suppose if they can crater the economy, lay-offs would add to the pool of available labore. But at what cost?
Complete speculation, but I suspect Powell does think about his legacy. Not that he aspires to be Volcker II (that ship sailed a while back), but I do believe he is interested in putting a stake through the heart of ZIRP and in restoring the Fed’s credibility as an independent player in the economy.
If one year from now PCE inflation is <2%, GDP growth is ~0%, and UE 5%, then do I think the Fed will be cutting aggressively. With its inflation mandate met, FOMC won’t ignore its full employment mandate. Also, while the Fed is publicly apolitical, the Governors won’t have forgotten Trump’s abuse of the Fed. I think 275 bp in well under a year is far-fetched, but markets do extrapolate.