Fed Could Introduce Rate Cuts In The Later Half Of 2023
The CPI data for October is only a few days away, and experts believe that it will be a major catalyst for the US markets. Furthermore, it will also give us a hint about the future direction of the Fed policy. Many experts are of the view that Fed is working towards creating a peak in the interest rates.
But this peak in interest rates means that Fed will also have to cut the interest rates steeply in 2023 once the conditions allow. However, the key word here is 'if the conditions allow' - So if the inflation still continues to run unchecked, the supposed rate cuts may never happen!
In December, the market is estimating a rate hike of 50 bps and a hike of 25 bp during the month of February and March. Overall, the fund funds rate will move towards the upper rate and could touch 5%. As a result, the most likely scenario is that rate cuts by Fed will be introduced during the latter half of 2023.
Furthermore, an aggressive rate hike will also lead us to steeper rate cuts once inflation and other conditions allow it!
Rut Cuts Expected In September 2023
For now, most experts are eyeing the start of rate cuts in the month of September 2023. Overall, around 125 bp rate cuts are expected, with a 25 bp rate cut starting in September. This will be followed by around a 50 bp rate cut in November and the same in December.
After this, the rate cuts will come down to 25bp until we reach the Fed's target of 2.5%. By that time, we will be entering the mid of 2024, and that's when the Fed is likely to take a pause.
So, in a nutshell, Fed will go into overdrive with its rate hikes, and once the inflation is controlled, the rate hikes will be reversed just as fast. But this whole ordeal will likely take the next 1 and a half years!