Top Wall Street Economist Thinks Fed Won’t Cut Rates in 2024

A mix of stubborn inflation and solid economic growth renews Federal Reserve policy debate.
Top Wall Street Economist Thinks Fed Won’t Cut Rates in 2024
Traders work as Federal Reserve Chair Jerome Powell is seen on a screen delivering remarks at the New York Stock Exchange on March 16, 2022. (Brendan McDermid/Reuters)
Andrew Moran

The Federal Reserve won’t cut interest rates as the U.S. economy remains solid and underlying inflationary pressures persist, according to a top Wall Street economist.

Torsten Slok, chief economist at Apollo Global, might have raised some eyebrows on the New York Stock Exchange to close out the trading week and kick off March last week by abandoning the idea that the central bank will pivot on monetary policy this year.

Writing in a March 1 note, Mr. Slok warned that interest rates will stay higher for longer.

“The reality is that the US economy is simply not slowing down, and the Fed pivot has provided a strong tailwind to growth since December,” he wrote. “As a result, the Fed will not cut rates this year, and rates are going to stay higher for longer.”

Mr. Slok listed several reasons for this forecast adjustment.

The first is that the economy is reaccelerating, fueled by an easing of financial conditions caused by the central bank’s December 2023 shift in policy expectations.

Inflation is another considerable factor for the economist’s new stance.

Various underlying inflation measures are trending higher, while the Fed’s preferred supercore metric is rising toward 5 percent year-over-year. Surveys of small businesses point to companies planning to raise prices, wage inflation continues to be sticky between 4 percent and 5 percent, and asking rents and home prices are edging higher.

Lastly, financial conditions have eased since the Fed’s pivot to finish 2023. This has been seen across the financial markets, such as robust initial public offering activity, tight credit spreads, and a record stock market.

“With financial conditions easing significantly, it is not surprising that we saw strong nonfarm payrolls and inflation in January, and we should expect the strength to continue,” Mr. Slok said.

“The bottom line is that the Fed will spend most of 2024 fighting inflation.”

After his comments took the business media by storm, he told Bloomberg Surveillance Radio that monetary authorities would be “very reluctant” to cut interest rates, even if the financial markets have signaled that inflation has been vanquished.

“The problem is that inflation is indeed looking like it’s becoming a problem again,” Mr. Slok said.

Last month, the annual inflation rate came in at a higher-than-expected 3.1 percent, and the core consumer price index (CPI), which omits the volatile food and energy components, was unchanged at 3.9 percent.

The personal consumption expenditure (PCE) price index—the Fed’s preferred inflation gauge—rose by 0.3 percent monthly, in line with the consensus estimate. Core PCE also matched economists’ expectations by surging by 0.4 percent.

Consumers think the Fed will be unable to meet its 2 percent target as the University of Michigan’s one-year-ahead consumer inflation expectations increased to 3 percent from 2.9 percent.

Raise, Pause, Cut: A Debate

In recent weeks, there has been a debate about whether the policymaking Federal Open Market Committee (FOMC) would leave the benchmark Fed funds rate higher for longer or cut. An addition to the conversation is whether the institution would raise rates.
The futures market is pricing in three rate cuts beginning in June, according to the CME FedWatch Tool. Heading into 2024, traders had anticipated six rate cuts, even as the Fed’s December 2023 Summary of Economic Projections signaled three this year.
Jim Bianco, head of Bianco Research, told Bloomberg on Feb. 26 that he had anticipated as many as two rate cuts at the start of the year.

“I’m more closer to the zero camp—no rate cuts—for right now,” Mr. Bianco said.

Speaking in an interview with Bloomberg on Feb. 20, former Treasury Secretary Larry Summers suggested that the financial markets can’t rule out the possibility of a rate boost.
U.S. National Economic Council Chairman Larry Summers in Beijing on Sept. 6, 2010. (Feng Li/Getty Images)
U.S. National Economic Council Chairman Larry Summers in Beijing on Sept. 6, 2010. (Feng Li/Getty Images)

“There’s a meaningful chance—maybe it’s 15 percent—that the next move is going to be upwards in rates, not downwards,” Mr. Summers said. “The Fed is going to have to be very careful.”

Some top Fed officials have indicated that they would be willing to consider higher rates should economic data warrant further tightening.

“While the current stance of monetary policy appears to be at a restrictive level that will bring inflation down to 2 percent over time, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed,” Fed Gov. Michelle Bowman told the Florida Bankers Association on Feb. 27.

However, it is unlikely that rate hikes are back on the table, according to Arthur Laffer Jr., president of Laffer Tengler Investments.

“Worst case scenario right now is the Fed pushes out any rate cuts until the end of the second quarter to the beginning of the third,” he said in a note, saying inflation would have to rise considerably and consistently for more than a quarter for the Fed to think about raising rates.

For now, the consensus among central bankers is that the economy and labor market are strong enough to afford them the luxury of being patient and waiting for more data to be confident enough to cut interest rates.

Fed Gov. Christopher Waller recently noted in a speech that there was “no rush” to begin cutting rates to normalize monetary policy. Boston Fed President Susan Collins acknowledged that her support to ease policy would depend on the data.
New York Fed chief John Williams thinks inflation will slow toward the 2 percent target rate and carve a path for rate cuts “later this year.”

Until the next two-day FOMC meeting later this month, there will be plenty of data for the Fed to sift through, including the February jobs and CPI reports.

Andrew Moran has been writing about business, economics, and finance for more than a decade. He is the author of "The War on Cash."
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