Specialists at Apollo Academy have presented a stark forecast for the US economy, challenging market expectations for Federal Reserve interest rate cuts in 2024. Analyzing various economic indicators, they argue that rates will stay elevated for an extended period, contrary to what investors initially believed.
Economic Outlook and Rate Cut Projections
Initially, a 150 basis point reduction was anticipated by the markets, but this expectation has been scaled back to a cut between 100 and 125 basis points. However, the Federal Reserve has signaled intentions for a more conservative reduction of 75 basis points within the year. Despite earlier predictions assigning a high likelihood to a March rate cut, recent re-evaluations have all but eliminated this probability, shifting the anticipated timeline for any potential cuts to July.
Indicators Suggesting Persistent High Rates
Apollo Academy experts have underscored ten key points solidifying their stance against the notion of an impending rate decrease. They emphasize the acceleration of economic growth post-December Fed decision, an upturn in various inflation measures including core and supercore inflation, ongoing labor market tightness with low unemployment claims and high wage inflation, alongside an increasing number of small businesses planning price hikes.
Further evidence comes from manufacturing surveys, which reflect a rising trend in prices paid—a precursor to inflation—and service sector indices like the ISM service prices that also indicate an uptrend. Additionally, small businesses are showing intentions to raise worker wages, and there is a noticeable climb in rents and house prices, all suggesting an inflationary climate.
The Academy interprets the easing financial conditions, such as record foreign currency issuance and robust stock market performance, as signs that the economy is not just stable but growing in strength. Consequently, they predict that the Federal Reserve’s focus throughout 2024 will be on combating inflation, resulting in sustained high interest rates in the fixed income market.