Federal Reserve Chairman Powell is preparing to testify before the Senate Banking, Housing and Urban Affairs Committee on March 7, 2024.
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WEST PALM BEACH, Fla. — Kristina Hooper, chief global market strategist at Invesco, said the Federal Reserve could begin cutting interest rates by the end of the second quarter despite recent inflation data being “higher than expected.” .
The U.S. economy may also avoid recession as the Federal Reserve adjusts interest rate policy, she and other strategists said Wednesday at Financial Advisor magazine’s annual Women in Investing conference in West Palm Beach, Florida.
The Fed has raised borrowing costs for consumers and businesses to curb high inflation during the pandemic. This has pushed up interest rates on mortgages, credit cards, car loans and other forms of lending.
Inflation has fallen sharply from its peak in mid-2022. However, it is still well above the Fed’s 2% target.
The question is, when and how quickly will central banks start cutting interest rates to avoid an economic downturn?
Federal Reserve Chairman Jerome Powell said last week that the Fed may not be far away from tightening policy.
Hooper said that despite higher-than-expected inflation data released this week, the central bank may start to reduce borrowing costs before the end of June, with cumulative interest rate cuts of 0.75 percentage points or 1 percentage point in 2024.
History may be the guiding principle, she said. The last time the Fed raised interest rates was in the summer of 2023; Hooper said that in previous interest rate hike cycles, the Fed began cutting interest rates about 8.5 months later.
Franklin Templeton President and CEO Jenny Johnson also expects the central bank to begin cutting interest rates this year, but that Fed policy will not begin until the second half of 2024 Meeting July or September.
The forecast has changed from previous months.
Moira McLachlan, senior investment strategist at AllianceBernstein Wealth Strategy Group, said the firm had expected five to six rate cuts this year but now expects three to four.
She said on Wednesday the company’s “base case” is for cumulative cuts of 1 percentage point through 2024.
Strategists expect the U.S. to avoid slipping into recession and experience what is known in economic parlance as a “soft landing” as it adjusts interest rate policy.
“A soft landing is our best guess at what’s going to happen,” McLachlan said.
“We may avoid a recession,” Hooper agreed.
“I do worry that it may be too late to start cutting interest rates,” she said.
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