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A leading economist has laid out ten reasons why he does not believe the Federal Reserve will cut interest rates in 2024.
Torsten Slok, chief economist of global asset manager Apollo, has added his voice to a growing chorus of experts predicting rates will not fall below their current 22-year-high this year.
Fed Chair Jerome Powell today also signaled there is no rush to slash the benchmark rate, but did say that the central bank still expects to reduce interest rates later this year.
In a blog post, Slok cited a red-hot economy, still-rising inflation, increasing rents and a strong labor market as the main reasons why the Fed will not ease up on its strict tightening cycle.
At the beginning of the year, experts had been hopeful of up to six cuts, but many have since become more downbeat.
Torsten Slok, chief economist of global asset manager Apollo, has added his voice to a growing chorus of experts predicting rates will not fall below their current 22-year-high this year
Slok said: 'The market came into 2023 expecting a recession. The market went into 2024 expecting six Fed cuts. The reality is that the US economy is simply not slowing down, and the Fed pivot has provided a strong tailwind to growth since December.
Officials confirmed interest rates will remain at their current level of between 5.25 and 5.5 percent
'As a result the Fed will not cut rates this year and rates are going to stay higher for longer.'
Slok also pointed to a survey of small businesses which indicates they are planning to raise prices and workers' wages even more.
And he noted other signs of a red hot economy such as rising payrolls and a surging stock market which ended 2023 on an all-time high.
'The bottom line is that the Fed will spend most of 2024 fighting inflation. As a result, yield levels in fixed income will stay high,' he concluded.
His comments come after figures showed the personal consumption expenditures (PCE) index - the Fed's preferred measure of inflation had increased at its fastest rate since last year.
The PCE index - which excludes volatile food and energy prices - increased by 0.4 percent between December and January.
In a research note to clients following the release, rates strategists at Bank of America said the findings 'raise the risk of the Fed signaling fewer cuts in 2024.'
Speaking at a hearing Wednesday before the House Financial Services Committee, Fed Chair Powell said the central bank still expects to cut interest rates 'at some point this year,' but not until policymakers are confident the war on inflation is won.
'If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,' he told lawmakers.
'But the economic outlook is uncertain, and ongoing progress toward our 2 percent inflation objective is not assured.'
Speaking at a hearing Wednesday before the House Financial Services Committee, Fed Chair Powell said the central bank still expects to cut interest rates 'at some point this year'
Some 97 percent of investors believe that the Fed will hold rates steady at their next meeting on March 20, according to the CME FedWatch tool.
This drops slightly to 79.1 percent for the May 1st meeting. But by June 12, more than 70 percent agree there will have been at least one rate cut.
Former Treasury Secretary Lawrence Summers similarly told Bloomberg Television there is a 'meaningful chance' the Fed could increase interest rates rather than cut them.
But this was dismissed by Powell today who noted rate hikes would be unlikely.
'We believe that our policy rate is likely at its peak for this tightening cycle,' he said.
'If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.'