Wall Street Banks Readjusts 2024 Interest Rate Predictions After Fed’s Dovish Turn

Wall Street is recalibrating its 2024 interest rate forecasts following a significant dovish pivot from the Federal Reserve.

This change in stance, indicating potential rate cuts, has led to a notable shift in market dynamics, with investors and forecasters adjusting their expectations for the upcoming year.

What Happened: During the recent Federal Open Market Committee (FOMC) meeting, Jerome Powell, the Fed chairman, held interest rates steady, continuing the trend of the past three policy meetings.

Despite this, Powell’s comments on potential inflation reversals and subsequent rate cuts have shifted the focus to the timing of these cuts in 2024.

As reported by Business Insider, the Fed’s projections show a decrease in the expected end-of-2024 interest rates to 4.6%, down from 5.1% in September, hinting at multiple rate cuts next year.

There is a changing consensus on Wall Street, primarily driven by the Fed’s tendency to lag in setting interest rate policy. This is due to officials relying heavily on delayed economic data to inform their rate decisions.

Bank of America Corp (NYSE: BAC)’s analysis after the FOMC meeting suggests a 90% likelihood of a Fed rate cut by March. “The December FOMC was clearly dovish, leading markets pricing about 90% chance of a Fed rate cut by March,” Bank of America said in a note. 

Market Consensus Versus Fed Projections

Contrary to the Fed’s projections, the market consensus, according to the CME Fed Watch Tool, anticipates more aggressive easing, with at least six 25-basis-point rate hikes in 2024, an increase from the five cuts expected before the Fed meeting.

Here is Wall Street’s perspective on the Federal Reserve’s shift toward dovishness and its implications for interest rates in 2024.

Also Read: Wall Street Braces For 2024 Recession: Economic Growth To Slow, Markets To Rise, Say Bullish Firms

Goldman Sachs’ Forecast On Rate Cuts

Financial giants like Goldman Sachs (NYSE: GS) have revised their forecasts in response to the Fed’s dovish pivot. Goldman Sachs predicts earlier and faster rate cuts, expecting three consecutive 25 basis point cuts in the first half of the year.

“In light of the faster return to target, we now expect the FOMC to cut earlier and faster. We now forecast three consecutive 25 basis point cuts in March, May, and June to reset…