Fed Plot-Line For 2024 May Reprise 2023 In Terms Of Surprises

Authored by Ven Ram, Bloomberg cross-asset strategist,

Around this time last year, the markets were betting that the Fed would raise rates by some 50 bps by the middle of 2023 and look to unwind some of its tightening by the end of the year.

As it happened, the Fed had to raise rates by twice as much, and was unable to loosen policy.

Interest-rate traders are now factoring in plenty of policy loosening based on the conviction that inflation is now in the rear-view mirror even as the US economy, especially the labor market, seems to be broadly resilient.

The Fed estimates that it can loosen its policy rate by 75 bps in 2024, but the markets reckon that twice as much is eminently doable.

Given the strength of the labor market, it’s hard to say with great conviction that inflation will slow to 2% anytime soon, which may yet upend the market’s calculus.

Which is why 2024 may have a curve ball in store for forecasters — much like 2023 did.