Investors are recalibrating their views on the Federal Reserve’s strategy as the US economy continues to wobble.
Some now ponder whether a rate hike, rather than the anticipated cuts, is on the horizon.
Fed Chair Jerome Powell has hinted that rate reductions starting in March are improbable, shifting market expectations away from cuts in the near term.
The speculation now leans towards the possibility of a rate increase. Lawrence Summers, ex-US Treasury Secretary, echoed market sentiments by suggesting a hike might be next.
Recalling the late ’90s, some analysts see a potential for brief rate cuts before an eventual increase.
Earl Davis from BMO Global Asset Management predicts a 75 basis point reduction by 2024, but with cautious optimism.
Recent remarks from Fed officials, including Powell and San Francisco Fed President Mary Daly, have not indicated imminent hikes.
Yet, they’ve left investors navigating through uncertainty without explicit guidance on future policy.
Economic data swings have prompted shifts in Treasury bonds, futures, and swaps, with yields climbing last week after unexpected spikes in consumer and producer prices.
Investors are adjusting strategies in light of the Fed’s indications. Some, like Davis, are hedging bets, anticipating a complex path to inflation control.
Citigroup and Societé Générale SA strategists propose anticipating a nuanced Fed policy, akin to late 1990s shifts.
Global factors, including geopolitical tensions and supply chain disruptions, add layers of complexity to the Fed’s policy outlook, pointing towards a “stop-and-go” approach.
In short, market experts anticipate significant volatility in 2024, highlighting the challenge of predicting the Fed’s actions.