Former Fed President Sees 3 Rate Cuts This Year as Unlikely

Rate Cut Reverse

Investors have had to readjust their interest rate cut expectations in the past weeks.

After hopes were high at the end of last year that the Federal Reserve could reduce its policy rate as early as this month, a reality check in the form of economic data appeared. The economy was stronger than expected, inflation ticked higher again, and the labor market continued to be solid. Against this backdrop, rate cuts didn’t look like such a sure thing anymore.

Former Kansas City Fed President Thomas Hoenig said last week in an interview with CNBC “I think three cuts would be a surprise now”. For reference, the Fed’s own dot plot projections suggested as many as three cuts, while market expectations were even higher.

In light of the current economic situation, Hoenig argued that jumping the gun on interest rate cuts could be a misstep, running the risk of reigniting inflation.

Market opinions are now divided on rate cut expectations. Optimistic forecasts see a first cut mid-year, while others aren’t projecting anything until the second half of the year, if at all in 2024. Hoeing himself is only penciling in one or two cuts this year.

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