The US interest rate hike cycle reaches a turning point! After 11 rate hikes, when will the rate cuts begin in 2024?

Editor’s Note

The nearly two-year Federal Reserve rate hike cycle has shown signs of fatigue. Since March 2022, the Fed has implemented 11 rate hikes, totaling 525 basis points, raising the federal funds rate from 0%-0.25% to the current 5.25%-5.50%. Entering the second half of 2023, the Fed paused in September, November, and December, leading the market to generally believe that the rate hike cycle is nearing its end. As inflation gradually recedes, whether rate cuts will arrive as expected in the new year has become a market focus.

A Once-in-Forty Years Tightening Cycle: 11 Rate Hikes Set a Historical Record

In early 2022, the United States faced unprecedented inflationary pressures. Post-pandemic, the U.S. government implemented ultra-loose policies, with the federal interest rate pushed down to a historic low of 0%-0.25%, and the Fed’s balance sheet expanded to $8 trillion. When the inflation monster was awakened, the Fed began aggressive policy adjustments.

Starting from March 2022, the 11 rate hikes by the Fed became the most intense monetary tightening in the past forty years. The first half of 2022, from June to November, was particularly aggressive, with four consecutive 75 basis point increases, setting a record for the largest single-rate increase in U.S. history. The evolution of the entire rate hike cycle is clearly visible:

The U.S. has raised rates 11 times, with the federal funds target range increasing by a total of 525 basis points. This aggressive pace is rare in Fed decision-making.

Inflation Recedes but Peak Not Broken: Hikes Show Effectiveness and Challenges

The Fed’s tough policies have not been in vain. U.S. core CPI( core price index) has fallen from 6.45% in March 2022 to 4.0% in October 2023, a cumulative decline of 245 basis points. Although still above the Fed’s 2% inflation target, this achievement demonstrates the effectiveness of rate hikes.

However, Fed Chair Powell has repeatedly emphasized that rate cuts are not imminent. In early 2023 and June’s policy meetings, Powell at times stressed “not ruling out further rate hikes.” Only recently, in his year-end speech, did he signal a dovish tone, hinting that the rate hike cycle is nearing its end.

This subtle shift marks a critical moment: the Fed has moved from an aggressive stance defending against inflation to assessing the balance between economic downside risks and inflation control.

The 2024 Rate Cut Puzzle: Market Expectations vs. Official Attitudes

Expectations for rate cuts have become a market consensus. According to CME FedWatch Tool data, the market predicts the Fed will start cutting rates as early as March 2024, with a total of five cuts throughout the year, bringing the rate down to 4.0%-4.25%. The probability of a rate cut starting in March exceeds 50%.

Major Wall Street institutions have differing views:

Optimists(Goldman Sachs): Believe the Fed will cut 87.5 bps to around 4.50% in 2024, with another 112.5 bps cut in 2025.

Neutral(JPMorgan Chase, Morgan Stanley): Agree on rate cuts in 2024 but do not expect them to be as rapid as the market anticipates, with cuts expected between 100-125 bps.

Cautious(BlackRock): Say the market’s expectations for rate cuts are “overdone.” The asset management giant believes rate cuts are most likely to start in Q2, with smaller magnitude than the market expects, and warns that global markets will face greater volatility in 2024.

Powell’s speech earlier this month cast a cold shower. He stated, “It’s too early to speculate on when policy might ease,” and kept the option of further rate hikes open. Fed officials Williams and Daly also signaled hawkish rate hike signals, indicating the Fed remains flexible.

Key Question: After 11 Rate Hikes, What’s Next?

The market faces a delicate situation: economic data shows signs of a soft landing, but inflation remains above target. All 11 hikes have achieved some effect, but officials remain cautious.

What are the true thoughts of decision-makers? Based on the latest signals:

1. Keep options open: The Fed admits rate cuts are within sight but refuses to commit to a timetable.
2. Data-driven: Future decisions will rely more on economic and inflation data.
3. Global risks: External factors such as geopolitical tensions and synchronized global slowdown are also considered.

In short, rate cuts in 2024 are almost certain, but the timing, pace, and magnitude remain highly uncertain. The market’s expectation of a March cut may be overly optimistic; Q2 appears to be a more realistic window. For investors, it is unnecessary to over-interpret every official statement and instead prepare for multiple scenarios—whether rate cuts come early or late.