Fed Holds Rates and Signals Several Cuts in 2024

The Federal Reserve’s Federal Open Markets Committee announced that, given the picture of the economy, it would again hold any change in the federal funds rate.

There was the usual “continue to assess additional information and its implications for monetary policy” statement to hedge any bets. Unlike other recent meeting announcements, though, the Fed spoke more positively about the efforts to reduce inflation. In the summary of projections, the central tendency of Fed board members and presidents was to expect several quarter-point rate reductions in 2024.

The projections further expected a 1.4% GDP growth in 2024, which would mean a calm slowing without a recession, and unemployment rising to 4.1% through the next few years and into the longer run and core personal consumption expenditures inflation dropping to 2.0% by 2026.

“For a group that prizes the pricing of its policy intentions in the forward markets as being more important to shifting market conditions than the spot rate, they had to know that moving the median forecast for Fed funds at the end of 2024 back to June levels would be a bullish signal,” wrote Steven Blitz, managing director of global macro and chief U.S. economist at TS Lombard in a note. “It confirms that pre-meeting market pricing of cuts in 2024 were correct in interpreting the Fed’s intentions. Add to this the change in the FOMC Statement verbiage from ‘In determining the extent of additional policy firming that may be appropriate’ to ‘In determining the extent of any additional policy firming that may be appropriate.’”

“‘No one is declaring victory. That would be premature,’ said Fed Chair Jerome Powell at a news conference,” according to a Wall Street Journal report. “Powell allowed that officials were looking ahead to when they might lower rates as inflation slows. ‘That begins to come into view, and clearly it’s a topic of discussion,’ he said.”

The news is good. However, it doesn’t look like what some in CRE might want, which is a return to ultra-low interest rates and high leverage. The federal funds rate median projection would be 4.6% next year, 3.6% in 2025, 2.9% in 2026, and 2.5% in the longer run. If correct, that would be lower than the full historical mean, but still much higher than what the industry has experienced for more than a decade.

While this could help tone down the refinancing problems many have faced, there also is a sense of needing to readjust to a near future that will be more challenging and demanding than near past.