What Comes After the Fed Pivot?

Apollo Chief Economist

FOMC members have since 2021 steadily been revising up their forecasts for where they think the Fed funds rate will be by the end of 2024, see chart below. This changed at their meeting earlier this week, where the Fed signaled that they now see interest rates in 2024 lower than they thought in September.

This pivot in communication, however, does not suggest that the inflation problem has been solved. Looking into 2024, there are upside risks to inflation (from a recovering housing market and easier financial conditions) and downside risks to growth (from the lagged effects of Fed hikes on consumers, firms, and banks).

The bottom line is that they may have pivoted their communication, but the Fed is not yet out of the woods, and the upside risks to inflation and downside risks to growth remain significant.

I will discuss the Fed pivot and our outlook for markets in 2024 in detail in an Apollo Academy class on Wednesday, December 20 at 11 am (eligible for 1 CE credit). Register today.

The Fed December surprise: Pivots to dovish stance, signals three rate cuts in 2024
Source: Bloomberg, Federal Reserve Board. Data as of December 14, 2023.

Download hi-res chart(s)

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