When will interest rates fall?

Mixed signals from interest rate projections

Jerome Powell and the FOMC brings similar messaging of a resilient US economy and uncertain future for interest rates. At present, the Fed anticipates full effects from the 5.5% Overnight rate are yet to be felt, and continual monitoring of employment and inflation data is necessary for navigating a soft landing from high inflation.

Traders, however, are left unsure of when rates will lower or if there is a chance of rising higher. For the next FOMC meeting, markets are still pricing in a 20% chance* of an additional 25 bps rate hike as Powell did not rule out the possibility – contingent on employment data to come. Though over a longer horizon, traders are expecting rates to lower in December 2024 by about 1%.*

Additional factors observed in the current economic landscape include decade-long highs in Treasury yields and a strong US dollar. In principle, US dollar markets will benefit from higher-for-longer rates in the US as they have so far.