Will interest rates get cut in 2024?

2023-12-25T23:03:27

2023 was characterised by very aggressive interest rate hikes by the Federal Reserve (which forced central banks across the world to follow suit, otherwise their currencies would have collapsed against the dollar).

It's been the most rapid hiking cycle in decades. Partly motivated by the fact that the Fed found itself behind the curve as it's initial judgement that inflation would prove to be transitory turned out to be wrong. And partly because it needed to get rate hikes done in 2023, as next year is election year, and the Fed prefers not to make any moves in the months leading up to an US presidential election.

Here is what has happened to inflation:

https://twitter.com/elerianm/status/1739067128299553001/photo/2

It takes about a year for interest rate rises to feed through the economy. So what we're seeing now is the effect of rates last December. And last year rates were around 3%. Now they are over 5%.

This means inflation will keep falling. Especially as Quantitative Tightening has been happening at the same time as rate rises.

Which means we might get an emergency rate cut as soon as February as the world economy slows.

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