Federal Reserve Chairman Jerome Powell prepares to testify before the Senate Banking, Housing, and Urban Affairs Committee on March 7, 2024.
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WEST PALM BEACH, Fla. – The U.S. Federal Reserve is likely to start cutting interest rates by the end of the second quarter despite recent “hotter than expected” inflation data, according to Christina Huber, chief global market strategist at Invesco.
The U.S. economy is also likely to avoid a recession as the Federal Reserve calibrates interest rate policy, she and other strategists said Wednesday at Financial Advisors' annual Investing in Women conference in West Palm Beach, Florida.
The Federal Reserve raised borrowing costs for consumers and businesses to rein in high inflation during the pandemic. This has raised interest rates on mortgages, credit cards, car loans and other forms of lending.
Inflation has declined significantly from its peak in mid-2022. However, it remains well above the Fed's target level of 2%.
The question has become: At what point – and at what speed – will the central bank begin lowering interest rates in order to avoid plunging the economy into recession?
Federal Reserve Chairman Jerome Powell said last week that the Fed may not be far from tapering.
Despite hotter-than-expected inflation data released this week, the central bank is likely to start lowering borrowing costs by the end of June, with cumulative cuts of 0.75 percentage points or one point in 2024, Hooper said.
History could be a guideline, she said. The last time the Fed raised interest rates was in the summer of 2023; In previous rate hike cycles, the Fed began cutting rates after about 8 1/2 months, Hopper said.
Jenny Johnson, president and CEO of Franklin Templeton Bank, expects the central bank to start cutting interest rates this year, though in the second half of 2024 at the Fed's policy meetings in July or September.
Expectations have changed from previous months.
Moira MacLachlan, chief investment strategist at AllianceBernstein's Wealth Strategies Group, said the firm had earlier expected five or six cumulative interest rate cuts this year, but now expects three or four.
The company's “base case” is cumulative cuts of 1 percentage point in 2024, she said on Wednesday.
Strategists expect that the United States will avoid a recession while dealing with interest rate policy, and witness what is known in economic language as a “soft landing.”
“A soft landing is our best guess as to where we will be,” McLachlan said.
“We are likely to avoid a recession,” Hopper echoed.
“I fear that (the Federal Reserve) may be too late to start tapering,” she said.
