After a tame October inflation report, almost everyone thinks the Federal Reserve is done raising their target overnight interest rate for this cycle. The Federal Reserve is not so sure.

Federal Reserve speakers have continued to emphasize that future actions are dependent on future data, and they will continue to take steps to bring inflation closer to their 2% target. This likely requires increasingly debt-laden consumers to slow their appetite for buying stuff and spending money on “life experiences.” Higher interest rates can encourage these outcomes.

Meanwhile, traders have started guessing as to when the Federal Reserve will make its first interest rate cut. As of this writing, they think the first rate cut could come as early as May 1 and overwhelmingly view a rate cut as likely by July 31.

Pressure for rate cuts will likely build through 2024 as the November election gets closer. The incumbent party would like the economy to be running on all cylinders going into next fall. This may conflict with the Federal Reserve’s stated goal of stamping out inflation so it does not rekindle as it has in the past. We will learn about their priorities in the first part of 2024.

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August 30, 2024 | Inside the Beltway: Federal Reserve

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December 4, 2023 | Inside the Beltway: Congress

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