The Fed’s reluctance to acknowledge that it will need to begin cutting its policy rate soon – to prevent a run-up in real rates – was predictable enough based on its intransigence ahead of previous turning points in the policy cycle. We continue to expect that – with core PCE inflation normalising much more quickly than Fed officials are willing to admit – the first rate cut will probably come at the March meeting next year. We then expect the Fed to cut by 25bp at every meeting from March onwards, for a cumulative decline of 175bp in 2024.
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