Wall Street isn’t expecting any drama when the Federal Reserve announces its final interest rate decision of the year on Wednesday.
The U.S. central bank is expected to leave rates at their current level of 5.25% to 5.50%. That would be the third consecutive meeting in which the Fed has left rates unchanged after it raised them at a historically rapid pace beginning in March 2022.
Annual inflation was at about 8% when the Fed started raising rates last year. In June it peaked at 9.1%. As of November, inflation was down to a more manageable level of 3.1%.
The Fed last raised rates at the end of July. Experts and investors are growing convinced that the Fed is probably done raising interest rates for the foreseeable future.
‘We think that the hiking cycle is done, though the committee will reserve the right to hike if necessary,’ a group of Bank of America economists wrote in a research note published on Friday.
Based on futures market data, CME Group’s FedWatch Tool says the odds are well above 90% that rates stay the same this month and at the Fed’s late January meeting as well.
After that, futures market data shows that market participants think there’s a strong chance the Fed will start cutting rates and almost no chance it will raise them further.
That’s led to a decline in long-term Treasury bond yields and in interest rates on mortgages and other loans. The yield on the 10-year Treasury note peaked at nearly 5% in mid-October, and it’s now down to about 4.2%.
According to the government-backed lender Freddie Mac, the interest rate on a 30-year fixed rate mortgage is down to about 7% as of Tuesday, after reaching 23-year highs of 8% in early October.
The Bank of America team wrote that it thinks the members of the Federal Open Market Committee will also forecast lower interest rates in 2024.
Referencing the Fed’s main interest rate, called the Federal Funds Rate, they wrote, ‘We look for the median member to project a 4Q 2024 funds rate of 4.6%, versus 5.1% in September. This would suggest that three [0.25%] cuts are likely if the economy evolves in line with the Fed’s baseline.’