Surprising Forecasts On How Soon The Fed Will Lower Rates

This brought federal funds rates to their highest level since 2007, prompting traders to bet on reduced levels in 2023 and economists across major firms still divided over when the peak will come. As of now though, signals sent out by policymakers suggest that elevated rates should be sustained until 2024 at least.

Experts are unsure of how long high-interest rates will affect the job market and if we might slip into a recession. Inflation has been resilient, even dropping somewhat as unemployment remains low and supply bottlenecks persist. The future trajectory is still uncertain, leaving economists to make varying projections on what lies ahead.

When Has the Fed Cut Interest Rates Historically?

Over the past five cycles, Fed rate hikes have lasted an average of 11 months - one of the longest periods in history. This time around however, with inflationary pressures beginning to simmer earlier than before, it appears that the Federal Reserve is taking a gradual approach to raise rates and contain rising prices.

After the global pandemic initially caused a higher-than-anticipated inflation rate in 2022, the Fed allowed it to go unchecked for twelve months. This resulted in an accelerated rise of more than two percent over just six months - one of the quickest rate hikes on record. With persistent elevated prices currently persisting longer than usual, measures may need to be taken for an extended period before settling back down.

Fed officials anticipate further hikes this year, with a goal of 5%-5.25%. However - while the Fed has suggested rate cuts won't arrive until 2024 - traders have predicted otherwise and recent history supports that timeline. In any case, analysts agree: if economic conditions take a drastic turn for the worse sooner rather than later, we could see those levers pulled as early as 2021.

What Are Economists Expecting This Time Around?

Morningstar predicts inflation will reverse quicker than the Fed estimates, citing rate cuts beginning in 2023 and extending into 2024. The firm believes that by talking down markets while decreasing bond yields and employment growth, the fight against rising prices should conclude within two years.

Barclays recently pushed back its forecast for a rate cut to November of 2023, expecting the return of moderate inflation over that period. The timeline remains ahead of what's estimated by the Federal Reserve and Morgan Stanley—both predicting December as when rates would finally start dropping again. Meanwhile, according to JPMorgan Chase researchers, there is potential for an earlier reduction next year should certain financial conditions like unemployment rise significantly or economic activity continues weakening at pace with current trends.

Though the majority of investors assume interest rates will remain constant until 2024, Goldman Sachs' Chief Economist Jan Hatzius believes inflation has been more durable than anticipated and hence doesn't foresee rate reductions before that year.



Bloomberg Economics is certain that a recession will affect the US in 2021 and many economists agree. If unemployment rises, it's likely that an increase of interest rates over the next two years could impede on mortgage rate reductions. Even with best-case projections, experts suggest we won't see any decline until late 2023 - 2024 depending on economic resilience post-recession.