We think the Federal Reserve has finished hiking rates, and the ECB and Bank of England aren't far behind.
Federal Reserve
At the recent Jackson Hole Fed symposium, Fed Chair Jerome Powell acknowledged that monetary policy is “restrictive” and that policymakers will “proceed carefully” in determining whether to hike interest rates further. September appears set for a pause given recent encouraging signals on inflation and labour costs, but robust activity data means the door remains ajar for a further potential hike. Markets see a 50-50 chance of a final hike while we think rates have most probably peaked.
Households are rapidly running down pandemic-era savings, and rising consumer loan delinquencies indicate growing stresses that will be intensified by the restart of student loan repayments. Amid weakening global activity, we are, unfortunately, in the camp that fears this is more of a downturn-delayed rather than recession-averted story. Fortunately, we think that inflation will continue to slow rapidly and this will afford the Federal Reserve the flexibility to respond swiftly to this challenging environment with interest rate cuts through 2024.
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