The U.S. Federal Reserve announced it kept the policy interest rate unchanged at its 22-year high range of 5.25-5.50% during its January meeting. Following the announcements, investors and economists shared their forecasts in light of varying expectations and predictions.
March Rate Cut Expectation Diminished
Federal Reserve Chairman Jerome Powell stated regarding the expectation of a rate cut in March that it’s unlikely the Fed will have enough confidence on this matter by March. Experts had assigned a 47% probability of a potential rate cut in March.
“I can say that I don’t think it’s likely that the Committee will reach a level of confidence (for a rate cut) by the March meeting. But we’ll see.”
Recession Probability: Risks Still Present
Prominent investor Jeffrey Gundlach warned of a recession following Powell’s shelving of the March rate cut scenario. In the United States, numerous analysts have been repeating recession warnings for the past year. Jeffrey Gundlach, founder of DoubleLine Capital, argues that the Fed’s strategy of high and sustained interest rates carries negative risks for future growth.
Gundlach stated that persistently high real interest rates would create risks for economic growth and emphasized that the U.S. economy is not in good shape, with the possibility of a recession still being valid.
Bloomberg Continues to Expect a Rate Cut in March
Following the Fed’s decision, economists at Bloomberg Economics are maintaining their base scenario of a rate cut in March. Economists predict that softening inflation and weakening in the labor market will provide enough confidence to Fed members for a rate cut in March.
On the other hand, economists at Goldman Sachs have postponed their initial rate cut forecast from March to May and maintained their prediction of five rate cuts this year and three in 2025.