The Federal Reserve is expected to ultimately cut interest rates in 2024, but in a measured way and weighted towards the second half of the year. Today, the Fed Funds target rate is 5.25% to 5.5%. Markets expect rates to fall by approximately 1% by the end of 2024 as assessed by the CME FedWatch Tool, which measures the implied expectations of the debt markets. The current range of outcomes for rates suggests a likely range between 4% and 5% for short-term rates by December 2024.
The Fed’s own more recent projections from September 20 are more hawkish than the market’s view. These suggest rates may not decline quite as much and fall to the 4.% to 5.5% range by December 2024.
However, Fed policymakers will update those projections at their next interest rate decision, and the final one of 2023, on December 1 when rates are expected to be held steady. Up to now, Fed officials have also argued that rates could increase again from here. That is now being described more as a potential scenario under certain economic conditions than the base case for interest rates.
The Fed Meeting Calendar For 2024
During 2024 the Fed has the typical schedule of eight meetings to determine interest rates. Of course, the Fed can adjust monetary policy whenever it choses. That could happen if 2024 sees unusual economic events. The Fed will announce decisions on interest rates following its two-day meetings on:
- January 31
- March 20
- May 1
- June 12
- July 31
- September 18
- November 7
- December 18
Each decision will be announced here via a written statement at 2pm E.T. with a press conference following the announcement. The minutes of each meeting are released 3 weeks later.
Every other meeting (March, June, September and December) will be accompanied by the Summary of Economic Projections where policymakers document their expectations for interest rates, growth, unemployment and inflation for the coming years and the longer run.
What To Expect
The current narrative is the inflation is cooling and on track to return to the Fed’s 2% annual target over the medium term. Of course, the Fed still wants to see more data confirming that view. It has asserted that rates may increase again if inflation does not move progressively lower.
However, markets have increasingly taken the position over recent weeks that inflation is controlled and no more interest rate increases are coming. That’s not entirely at odds with the Fed’s perspective, but Fed officials still express some concern that inflation may not move consistently lower from here.
A Soft Landing?
The other consideration is economic growth. The jobs market has remained robust in 2023 so far, but jobs gains have slowed from high levels and could weaken further in 2024. There is some suggestion that with the yield curve flashing a recession warning and unemployment edging up, that a recession in 2024 may be coming.
A recession would likely a positive in taming inflation, but would present risks to the Fed’s goal of maintaining full employment. If the economy sees something more severe than a so-called soft landing, and soft landings have historically been rare, then the Fed may be tempted to cut rates to help bolster the economy. Though for now, the Fed has argued their goal is to maintain high rates to manage inflation. Still, there is a potential scenario where a severe recession prompts the Fed to cut rates faster than planned.
Overall, interest rates are expected to move down in 2024, but neither rapidly nor dramatically. If inflation were to expectedly heat up that picture could change. Equally a severe recession, which is also not expected, might prompt the Fed to cut rates at a faster pace.