US Markets
Tuesday, December 12th, 2023 3:04 pm EDT
Key Points
- Anticipated Rate Cuts in 2024: Respondents to the CNBC Fed Survey predict that the Federal Reserve will initiate rate cuts next year. However, the expected cuts are not as aggressive or rapid as what financial markets have priced in. More than half of the respondents foresee rate reductions beginning in June, reaching 69% by July. On average, respondents forecast approximately 85 basis points of cuts for the year, suggesting a gradual approach, contrasting with the 120 basis points built into futures markets.
- Increased Likelihood of a Soft Landing: The survey indicates an elevated probability of a soft landing, with respondents boosting the chance to 47%, up by 5 points from the previous survey in October. In contrast, the probability of a recession within the next year decreased by 8 points to 41%, the lowest since spring 2022. Despite this optimism, the average respondent predicts a rise in the unemployment rate to 4.5% next year and GDP just below 1%, underscoring the nuanced economic outlook.
- Inflation Forecasts and Market Expectations: Respondents project a decline in inflation to an average of 2.7% by the end of the next year, down from the expected year-end level of 3.2% for the consumer price index. Views on the Fed’s ability to hit its 2% inflation target vary, with about a third expecting it to happen next year, 37% in 2025, and 28% after 2025 or never. The survey also explores the potential end of quantitative tightening (QT) by the Fed, with respondents on average predicting a halt in November 2024. However, there is disparity in views, and the article notes the uncertainty surrounding the end of QT and its impact on the market, with the respondents seeing the S&P surpassing 5,000 but not until the end of 2025.
The CNBC Fed Survey reveals an optimistic outlook for the coming year, anticipating rate cuts by the Federal Reserve, although not as aggressively and rapidly as market expectations. Respondents foresee a gradual reduction starting around mid-year, with an average expectation of 85 basis points in cuts for the year, diverging from the 120 basis points implied by futures markets. Some respondents argue that the Fed should outline a roadmap for rate cuts, considering the lag in inflation decline and the rise in real rates.
The probability of a soft landing increased to 47%, up by 5 points from the previous survey, while the likelihood of a recession within the next year decreased by 8 points to 41%, the lowest since spring 2022. Despite this, the average respondent predicts a rise in the unemployment rate to 4.5% and GDP just below 1%, indicating a baseline forecast of an economic slowdown.
Inflation forecasts suggest a decline to an average of 2.7% by the end of the next year, down from the expected year-end level of 3.2% for the consumer price index. Around one-third of respondents believe the Fed will achieve its 2% inflation target in 2024, with varying opinions on the timeline.
The possibility of the Fed ending quantitative tightening (QT) is another consideration for the next year. On average, respondents expect QT to cease in November 2024, with differing opinions on the specific timeline. The expected market trajectory sees the S&P surpassing 5,000 by the end of 2025, with a modest gain of less than 2% through 2024. However, the market’s direction remains uncertain, with divergent views on whether it will break out or sustain a correction. Some express concerns about overpriced stocks in the event of a soft landing or recession, emphasizing the market’s current state of indecision.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/12/fed-to-start-cutting-rates-midyear-in-2024-with-high-chance-of-soft-landing-cnbc-fed-survey-finds.html
