I posted earlier on the Bank of America fund manager survey:
TD has a similar timing for their first expected Federal Open Market Committee (FOMC) rate cut:
- Finding the right level of interest rates is only the first order of tasks. The next becomes how long to hold at that level. Over the last three cycles, the Fed held the policy rate at the peak for an average of 9 months before starting to cut rates, but the range is wide at 7 to 14 months. The longest period occurred in 2006 and 2007. Then too, consumer spending was surprising resilient in the face of falling house prices, before a wave of poorly underwritten mortgages tipped the scales.
- If July is indeed going to mark the final hike, than history’s guide would imply the Fed would see sufficient data to prompt a rate cut as early as January 2024.
- We deem that outcome to be a long shot and have instead penciled the first rate cut in the second quarter as the earliest timing. This is when our core inflation metric finally cracks below 3% alongside sputtering job demand, hopefully offering sufficient comfort to the Fed that inflation is on a sustained trajectory towards its 2% target.
- In that environment, if the Fed does not cut interest rates, a real (inflation-adusted) interest rate north of 3% would materialize. This would be a significant development. In all historical instances of recessions, monetary policy settings were left at this level or higher, indicating that the cost of capital became too crippling for too long.
Bolding above is mine.
Federal Reserve Chair Powell
