### Summary
The majority of economists believe that the U.S. Federal Reserve will not raise interest rates again and may even cut them by the end of March, due to positive economic indicators and low unemployment.
### Facts
- 90% of economists polled expect the Fed to keep interest rates in the 5.25-5.50% range at its September meeting.
- Roughly 80% of economists expect no further interest rate increases this year.
- The Fed's preferred measure of inflation is not expected to reach its 2% target until at least 2025.
- Confidence in the economy's ability to avoid a major downturn has led to expectations that interest rates will remain higher for a longer period, causing fluctuations in bond markets.
- 23 economists predict one more rate increase this year, while two expect two more increases to 5.75-6.00%.
- A majority of 95 economists expect rates to decrease at least once by mid-2024, but there is no agreement on the timing of the first cut.
- Nearly three-quarters of economists believe that shelter costs, a main driver of inflation, will decrease in the coming months.
- The real interest rate may be adjusted by the Fed based on inflation, which could prompt a rate reduction next year rather than a stimulus.
Source: [Reuters](https://www.reuters.com/business/futures-touch-fifers-hopes-us-fed-rate-cut-rise-boosted-2019-08-23/)
📉 Money managers who loaded up on US government bonds as a bet against recession are now facing subpar returns and a deepening selloff as Treasury yields rise.
📉 The annual return on US government bonds turned negative last week as Treasury yields reach a 15-year high, suggesting that interest rates will remain elevated and the economy can handle it.
📉 Bob Michele, CIO for fixed income at J.P. Morgan Asset Management, remains undeterred and is buying every dip in bond prices.
📉 Other prominent money managers, including Allianz Global Investors, Abrdn Investments, Columbia Threadneedle Investments, and DoubleLine Capital, believe that the impact of Federal Reserve rate hikes is just starting to be felt by the economy and predict a recession.
📉 Fund managers are making adjustments to duration to hedge their positions, with some shortening duration while others maintain overweight positions.
📉 Historical patterns suggest that rate hikes often lead to slumping economies, but it remains uncertain whether yields will follow the same pattern this time.
📉 The borrowing needs of wealthy economies and the flood of debt issuance may lead to higher yields.
📉 Despite the current environment, some funds that took short bond, long stock positions have faced significant drawdowns, indicating that rates may remain elevated.
📉 J.P. Morgan's Michele is confident that bond yields will fall once the Fed finishes its tightening cycle, even before the first rate cut.
### Summary
The world's top central bankers, including Federal Reserve chief Jerome Powell, are facing a fragile backdrop at this year's Jackson Hole conference, with uncertainties about the effectiveness of interest rate hikes, the duration of tight monetary policy, and the potential for a European recession.
### Facts
- Even in the US, which has relatively positive economic numbers, two-thirds of respondents in a Bloomberg survey believe the Fed has yet to conquer inflation.
- Global government bond yields have surged to the highest levels in over a decade, reflecting expectations that central banks will continue to raise interest rates.
- Market participants believe that if interest rates remain high for a longer period, stock prices may decrease, and firms could face increased debt servicing costs.
- Monetary policy decisions made by central banks could have a delayed impact on economies, potentially leading to a recession or financial instability.
- The survey split 50-50 on the chance of a US downturn over the next 12 months, while 80% of respondents expect a euro-area recession.
- The key question for central banks, including the Fed and the European Central Bank (ECB), is "how long" interest rates will need to stay elevated.
- The Bank of England may need to take further action to address inflationary pressures in the UK.
- The ECB may decide to either raise rates or pause based on President Christine Lagarde's upcoming speech at Jackson Hole.
- There is debate about the timing of future rate cuts, including the likelihood of the ECB cutting rates before the Fed.
- Uncertainties in the global economy include the potential impact of a China downturn, Russia's conflict in Ukraine, US budget deficits, and energy price spikes in Europe.
Note: This content is fictional and generated by OpenAI's GPT-3 model.
The majority of economists polled by Reuters predict that the U.S. Federal Reserve will not raise interest rates again, and they expect the central bank to wait until at least the end of March before cutting them, as the probability of a recession within a year falls to its lowest level since September 2022.
U.S. mortgage rates have dropped for the first time in six weeks, due to uncertainty surrounding the possibility of the U.S. Federal Reserve increasing interest rates in September.
Goldman Sachs has lowered its probability of a U.S recession in the next 12 months to 15% due to positive inflation and labor market data, while also predicting a reacceleration in real disposable income and expecting the Federal Reserve to keep interest rates unchanged.
The Federal Reserve has sold about $1 trillion of its bond holdings without causing strains in financial markets, as part of its balance sheet reduction program.
Mortgage rates have increased over the past week, with the average interest rates for 15-year fixed and 30-year fixed mortgages rising, while the average rate for 5/1 adjustable-rate mortgages declined; the Federal Reserve's efforts to control inflation by raising the federal funds rate may impact mortgage rates, but experts suggest that the markets have already factored in the increase.
The Federal Reserve is expected to maintain its benchmark interest rate and may not cut it until the second quarter of 2024 or later, according to economists in a Reuters poll.
The stock market is currently stagnant and the key question is when the Federal Reserve will start cutting interest rates, as the market struggles when the Fed tightens monetary policy.
Goldman Sachs strategists predict that the Federal Reserve is unlikely to raise interest rates at its upcoming meeting, but expect the central bank to increase its economic growth projections and make slight adjustments to its interest rate projections.
The Federal Reserve's restrictive monetary policy, along with declining consumer savings, tightening lending standards, and increasing loan delinquencies, indicate that the economy is transitioning toward a recession, with the effectiveness of monetary policy being felt with a lag time of 11-12 months. Additionally, the end of the student debt repayment moratorium and a potential government shutdown may further negatively impact the economy. Despite this, the Fed continues to push a "higher for longer" theme regarding interest rates, despite inflation already being defeated.
High mortgage rates have frozen the US housing market, but experts predict that the Federal Reserve may cut interest rates in the next 12 to 18 months, potentially leading to a decline in mortgage rates.
The Federal Reserve has indicated that interest rates will remain "higher for longer," potentially for at least three more years, in order to sustain economic growth and combat inflation.
The Federal Reserve's interest-rate forecast is more hawkish than anticipated, with policymakers expecting to hold their key rate a half-percent higher through 2024 and cutting the federal funds rate by just one quarter-point over the next 15 months due to the economy's recent unexpected strength, despite doubts from Wall Street and rising Treasury yields.
Rising Treasury rates and oil prices are creating an unfavorable situation for consumers, investors, and the economy, making it challenging for the Federal Reserve to manage inflation without causing a recession. The potential for a "soft landing" and decreased inflation remains, but the economy should prepare for possible sector-by-sector recessions and a full-blown recession, along with government shutdowns and fiscal policy disputes becoming normal occurrences. The discrepancy between short-term and longer-term rates controlled by the Fed has gained importance, with higher borrowing costs disrupting the stock and bond markets. In this volatile period, long-term investors should hold on and ensure they have enough money saved to weather the storm. While the Fed has pushed short-term rates higher, it has also benefited savers with higher yields on money market funds, short-term Treasury bills, and high-yield savings accounts. However, a strong dollar has impacted S&P 500 earnings, leading to a struggling stock market and increased costs for imports and exports. Rising interest rates pose the greatest economic challenge, affecting consumer loans and dampening spending. Traders who bet on long-term bonds have faced losses due to rising rates, highlighting the inverse relationship between interest rates and bond prices. As a result, it may be advisable to purchase shorter-term Treasuries and keep bond durations lower. The surge in bond yields has also disrupted stock investors' expectations of controlled inflation and the Fed's tightening, leading to stock market losses. The economy and markets may experience more turmoil, as there are various factors beyond the Federal Reserve's control.
The Federal Reserve's shift towards higher interest rates is causing significant turmoil in financial markets, with major averages falling and Treasury yields reaching their highest levels in 16 years, resulting in increased costs of capital for companies and potential challenges for banks and consumers.
Goldman Sachs has revised its forecast for mortgage rates, predicting that they will be higher than previously expected, with rates of 7.1% by the end of 2023 and 6.8% by the end of 2024, due to the Federal Reserve's decision to maintain benchmark interest rates and concerns about inflation, leading to a decrease in mortgage applications and homebuyers being priced out of the market.
The Federal Reserve is expected to continue reducing its bond holdings despite the recent surge in bond yields, as key measures of volatility and liquidity in the bond market are not indicating a significant risk, and higher credit costs align with the central bank's goal of restraining growth and lowering inflation.
Despite the ongoing bear market in Treasury bonds, certain sectors of the fixed-income market, such as bank loans, short-term junk bonds, and floating-rate notes, are performing well in 2023, offering some protection from the losses in long-term Treasuries, which have slumped 46% since March 2020. The future performance of long-dated bonds depends on the Federal Reserve's monetary policy and the resilience of the economy.
Long-term bond yields have surged as the Federal Reserve reduces its bond portfolio and the U.S. Treasury sells debt, contrary to the expectations of Wall Street and investors worldwide, but a research paper written by a University of Michigan student six years ago accurately predicted this scenario.
Goldman Sachs warns that the Federal Reserve's prolonged tight monetary policy and higher interest rates will have a negative impact on the economy and markets, potentially leading to lower GDP growth, stock market pressure, and challenges for corporations.
Higher-for-longer interest rates are expected to hinder U.S. economic growth by 0.5%, potentially leading unprofitable public companies to cut their workforce, according to strategists at Goldman Sachs, who also noted that the Federal Reserve's current benchmark rate is insufficient to cause a recession. Additionally, the firm warned that the high rates could increase the U.S. debt-to-GDP ratio to 123% over the next decade without a fiscal agreement in Washington.
Investors are closely monitoring the bond market and September CPI data to determine the Fed's stance on interest rates, with Seema Shah of Principal Asset Management highlighting the circular nature of market reactions to yield spikes and their subsequent declines. She suggests that while there are concerns about upward momentum, the equity market will find comfort in a continued drop in yields and could remain range-bound for the rest of the year. Diversification is recommended as the market narrative remains unclear, and investors may consider waiting until early 2024 for greater clarity on the economy and the Fed's actions.
Several housing groups, including the Mortgage Bankers Association, are urging the Federal Reserve to reduce rates as mortgage rates climb to 7.5%, fearing that further increases may lead to a recession.
The Federal Reserve is expected to reach its 2% inflation target rate by early 2025 and is unlikely to raise interest rates in the near future, according to Mike Fratantoni, Chief Economist of the Mortgage Bankers Association. Fratantoni also predicts that the 10-year treasury rate will drop below 4% by the end of the year, leading to a decrease in mortgage rates over the next two years. The U.S. government's fiscal policy and debt limit impasse could continue to impact mortgage rates.
The Federal Reserve is expected to lower interest rates by the end of 2024, but the decline will be mild and likely to occur in the second half of the year, with the possibility of one more rate increase in 2023, according to policymakers and markets. The forecast for rate cuts is not as significant as the rate increases seen in previous years, with a projected decline of 1% in the Fed funds rate by the end of 2024. The Fed's own projections indicate short-term rates around 5% at the end of 2024, suggesting a slower trajectory for rate declines compared to market expectations. The Fed has scheduled eight meetings in 2024 to set the Fed funds rate, with the potential for rate cuts starting in June or later. The decision to lower rates may not happen until the summer of 2024, as the Fed has emphasized that it plans to cut rates gradually rather than making immediate cuts. The outlook for rates is based on the expectation that inflation will take more time to reach the Fed's target of 2% and that unemployment will increase slightly. The main risk to the rate outlook is a more severe recession in 2024, but the Fed's current focus is on addressing inflation. Recent data for 2023 has been positive, indicating that the economy may have avoided a recession. Overall, while interest rates are expected to decline in 2024, the decrease will be modest and delayed.
According to Bank of America's Global Fund Manager Survey, 56 percent of investors believe that bond yields will fall over the next 12 months, with two potential paths being a soft landing or a hard landing for the Fed.
Rise in long-term Treasury yields may put an end to historic interest rate hikes that were meant to lower inflation, as 10-year Treasury yields approach 5% and 30-year fixed rate mortgages inch towards 8%. This could result in economic pain for American consumers who will face higher car loans, credit card rates, and student debt. However, it could also help bring down prices and lower inflation towards the Federal Reserve's target goal.
