Fed and Markets Diverge on Timing of Anticipated 2024 Rate Cuts

While markets predict early 2024 rate cuts, Federal Reserve officials emphasize the need for further evidence of cooling inflation and retain the option for additional rate hikes.

Markets anticipate the Federal Reserve to cut interest rates as early as spring 2024, but Fed officials believe it's premature to discuss rate cuts until they see further evidence of cooling inflation.
Despite the market's expectations, Fed Chair Jerome Powell and other officials have emphasized the possibility of further rate hikes if necessary to bring inflation down to the Fed's 2% target.
Analysts suggest that we are likely at the peak of the interest rate-hiking cycle, with a 96% probability that the Fed makes no move in December, and an 88% likelihood of no change at its first meeting of 2024.
However, if inflation cools further, the Fed may indeed cut rates earlier in 2024. If the economy continues to run hot and if inflation remains stubbornly above the Fed’s 2% annual goal, then the Fed’s view may win out.
Much depends on incoming inflation and jobs data, but the market is increasingly optimistic.