Higher for longer after all? Investors see Fed rates falling more slowly

INVESTORS were betting big on Federal Reserve rate cuts at the start of 2024, wagering that central bankers would lower interest rates to around 4 per cent by the end of the year. But after months of stubborn inflation and strong economic growth, the outlook is starting to look much less dramatic.

Market pricing now suggests that rates will end the year in the neighbourhood of 4.75 per cent. That would mean Fed officials had cut rates two or three times from their current 5.3 per cent.

Policymakers are trying to strike a delicate balance as they contemplate how to respond to the economic moment. Central bankers do not want to risk tanking the job market and causing a recession by keeping interest rates too high for too long. But they also want to avoid cutting borrowing costs too early or too much, which could prod the economy to re-accelerate and inflation to take even firmer root.