As 2024 began, many economists and bankers were predicting that the Federal Reserve (Fed) would cut rates multiple times throughout the year. The central bank itself projected three quarter-percentage point cuts by the end of the year. However, as the first quarter comes to a close, the federal funds rate remains unchanged between 5.25% and 5.5%. While the stock market suggests investors believe rate cuts are still possible, history indicates this may not be the case.
Despite current rates being the highest in two decades, they are still relatively low compared to historical highs. In the early 1980s, the federal funds rate reached almost 20%, and in the 1990s, rates hovered around 8%. The Federal Reserve has a history of keeping rates steady for extended periods of time, with instances lasting over two years. When rate cuts do occur, they typically follow economic downturns or crises, of which there is no immediate risk according to Fed Chair Jerome Powell.
With the upcoming presidential election in mind, the Fed may be reluctant to make significant rate cuts to avoid accusations of political motivation. As the election draws nearer and barring any major economic developments, the central bank may choose to maintain the status quo to avoid interference in the election process. However, the pressure from expectations on Wall Street and potential disruptions in the real estate sector could push the Fed to preemptively cut rates by 25 basis points.
Overall, the possibility of multiple rate cuts before the end of 2024 remains uncertain based on historical trends. While the current economic conditions do not warrant significant rate cuts according to Powell, the looming election and market expectations could influence the Fed’s decision-making process. Any deviation from expectations could cause disruptions in financial markets and real estate, leading to potential pre-emptive rate cuts by the Fed. Ultimately, only time will tell how the timing of future rate cuts will unfold in the coming months.
