June 24, 2024

Powell Pushes Back on Rate Cut Expectations, But Door Still Open

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Feb 5, 2024

Jerome Powell, Chairman of the Federal Reserve, made headlines this weekend with his interview on 60 Minutes where he poured some cold water on market expectations for quick interest rate cuts. However, Powell also reiterated the Fed’s data-dependent approach, leaving the door open for rate cuts later this year if the economic data warrants it.

Fed Not Ready to Declare Inflation Victory

In the interview, Powell emphasized that more evidence is needed to be confident that inflation is on a sustainable downward path towards the Fed’s 2% target before pausing or reversing the Fed’s rate hiking campaign that began last year:

“We think we are going to need to see several months more of data to be confident that inflation is moving back down to 2% on a sustainable basis.” (source)

Powell pushed back particularly hard on market expectations that rate cuts could come as early as this summer. He stated plainly that the conditions for rate cuts are “not at all” likely to be met by the middle of this year.

Fed Funds Rate Projections

Year 2023 Year-End 2024 Year-End
September 2022 FOMC Projections 4.4% 4.6%
January 2023 FOMC Projections 5.1% 5.1%
Market Expectations (as of Feb 3) 4.75-5.0% 4.25-4.50%

Table shows divergence between Fed projections and market expectations for interest rates

(table source)

As the table shows, markets still expect rate cuts to begin in the second half of 2024 even after Powell’s pushback on the timing.

Data-Dependent Approach Still Allows Rate Cuts Later This Year

However, Powell was also careful not to completely shut the door on rate cuts this year. He stated that the decision would ultimately depend on how the economic data evolves. If inflation continues to moderate and the economy begins slowing more dramatically, rate cuts could still happen in 2024.

“We’re going to react to the data. So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more” (source)

So while the Fed is signaling that the bar for rate cuts is high initially, they are still open to adjusting policy if the data supports it.

Path of Rate Cuts Still Highly Uncertain

There remains tremendous uncertainty around the path of interest rates and how quickly the Fed could pivot to cutting rates. Views are mixed even among Fed officials:

  • Hawkish: Some like Fed Governor Michelle Bowman see a very high bar for rate cuts this year and want clear evidence that inflation is back to 2% first.
  • Dovish: Others like Neel Kashkari (Minneapolis Fed President) see rate cuts potentially beginning as early as this fall.

For markets, this uncertainty around the pace and timing of rate cuts leads to volatility. Any big surprises in the high-profile economic data releases like jobs reports or inflation could cause large market swings as expectations adjust.

Likelihood of Recession Still Debated

Tied to the interest rate debate is also debate around recession risk in 2024. Hawkish Fed officials argue that the economy remains strong enough to withstand further rate hikes if needed. But dovish officials and many Wall Street economists warn that an overly aggressive Fed threatens to tip the economy into an unnecessary recession.

In his 60 Minutes interview, Powell reiterated his confidence that a “soft landing” can be achieved with inflation returning to target without a severe downturn or substantial rise in unemployment. Whether that optimistic outcome is achieved remains to be seen.

Impact on Mortgages and Housing

While Powell’s comments drove some backup in rate cut expectations, most economists still expect rates to trend lower in the back half of 2024. This outlook along with slowing home price appreciation could provide some relief to housing affordability after the rapid rate spike of the past year:

alt text

Chart shows spike in 30-year fixed mortgage rates over past year

(chart source)

After peaking near 7% last fall, 30-year fixed mortgage rates could return to the ~5% range later this year if the Fed does begin rate cuts. This would meaningfully improve affordability and provide support to the housing market.

However, the path rates and the broader economy is highly uncertain at this juncture. For prospective homebuyers, the best approach may be to maintain flexibility and lock in rates promptly when there are dips rather than trying to time the absolute bottom.

Market Reaction and What’s Next

Markets initially sold-off on Powell’s hawkish rate cut timing comments, but expectations for cuts later this year remain intact for now keeping markets supported at around recent ranges. All eyes now turn to the upcoming January jobs report Friday which could cause the next big shift in the rate cut debate. Stronger job growth and wage gains would back up Powell’s patient stance while a clear labor market slowdown could increase pressure for a more dovish pivot.


In summary, while the Fed is attempting to push back on imminent rate cut expectations, they are still open to adjusting policy in a data-dependent way. There remains disagreement among officials as to how fast rates could come down this year. With tremendous uncertainty around inflation, growth, recession risk and the Fed’s reaction function, market volatility is likely to remain elevated in 2024. Stay tuned as the debate around interest rates and the strength of the economy continues to play out with markets hanging in the balance.




AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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