Dmitri Kalvan
Interest rates will once again be back in the news this coming week, when the Federal Reserve Open Market Committee meets to decide whether to implement a rate cut or keep rates where they are.
Ahead of the meeting, we asked Seeking Alpha analysts Lawrence Fuller, Michael Kramer, Logan Kane and James Kostohryz for their thoughts on where they see interest rates heading over the next few months.
When do you see the first rate cut happening?
Lawrence Fuller: I believe the first reduction in the benchmark rate could come as early as June, but no later than July, as I think the dis-inflationary trend will be firmly re-entrenched by then and the rate of economic growth will be starting to show more significant signs of slowing.
Michael Kramer: The first-rate cut will likely come in May 2025. Based on CPI swaps, inflation is expected to stay above 3% between February 2025 and March 2025, with one potential dip in August due to the base effect. This will make it very hard to cut rates in 2024, which probably means the first rate will probably come in May 2025.
Logan Kane: Given the current economic/inflation data that has run hotter than expected, I’d expect the Fed not to be able to cut until September.
James Kostohryz: Inflation is currently accelerating, i.e. moving further away from the Fed’s target, and I expect this trend to continue for most of the rest of 2024. Unless there is solid evidence that there is a serious risk of a recession, I do not expect the Fed to cut interest rates at all in 2024.
This past Thursday, the BEA reported that Real Sales to Final Domestic Purchasers — a better measure of domestic demand than GDP — rose by a very strong 3.1%. Domestic demand is currently rising at a faster pace than the potential growth rate of supply, which is causing inflationary pressures. Furthermore, both the GDP report on Thursday and the Personal Income and Outlays report on Friday have shown that core inflation is accelerating — particularly “supercore” inflation (core services ex-housing). In this context, there are certain scenarios under which the Fed might even need to raise interest rates later this year.
What do you think the target rate will be by the end of 2024?
Lawrence Fuller: We should see at least three quarter-point rate cuts, bringing the Fed Funds rate down to a range of 4.5-4.75%.
Michael Kramer: 5.25% to 5.50%.
Logan Kane: The Fed runs the risk of appearing political if it attempts to cut rates too much before or shortly after the U.S. presidential election in November. Therefore, I’d expect the upper-end Fed fund rate to finish the year between 5.0% and 5.25%. A recession might force the Fed to cut more, while resurgent inflation may raise the possibility of the Fed not cutting at all. I expect inflation and rates to be higher than the market currently expects going forward.
James Kostohryz: I expect that the Fed Funds target rate range will remain at 5.25% to 5.50% for the rest of 2024.
The near-term fate of the major equity averages (DJI), (SP500), (COMP:IND) will be heavily influenced by the Fed’s decision. Here are some funds closely tied to the major averages: (DIA), (QQQ), (FXAIX), (VFIAX), (VFFSX), (SPY), (VOO), (IVV), (RSP), (SSO), (UPRO), (SH), (SDS) and (SPXU).
