Question #6 for 2024: What will the Fed Funds rate be in December 2024?

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2024. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I’ll post thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I’m adding some thoughts, and maybe some predictions for each question.

6) Monetary Policy: To slow inflation, the FOMC raised the federal funds rate four times in 2023 from “4-1/4 to 4-1/2 percent” at the beginning of 2023, to “5-1/4 to 5-1/2” at the end of the year. Most FOMC participants expect around three 25 bp rate cuts in 2024. What will the Fed Funds rate be in December 2024?

As of December, looking at the “dot plot”, the FOMC participants see the following number of rate cuts in 2024:

25 bp Rate Cuts	FOMC Members 2024
No Change	2
One Rate Cut	1
Two Rate Cuts	5
Three Rate Cuts	6
Four Rate Cuts	4
More than Four	1

The main view of the FOMC is for two to four rate cuts in 2024.

However, currently policy is restrictive with the Fed Funds rate range at ‘5-1/4 to 5-1/2’ percent and core PCE inflation at 3.2% year-over-year in November. If we look at the last 6 months, inflation is even lower and policy even more restrictive.

PCE Price Index: 2.0% (over last 6 months annualized)

Core PCE Prices: 1.9%

Core minus Housing: 1.1%

If inflation continues to stay at the same level as the last 6 months or soften further (next question), the FOMC will have to start cutting rates soon.

In the Q&A at the last FOMC press conference, Fed Chair Powell said the following concerning the timing of the first rate cut:

“We are aware of the risk that we would hang on too long. We know that is a risk and we are very focused on not making that mistake.”

The next FOMC meeting ends on January 31st, and it appears the Fed will hold rates steady at that meeting. There will be two key December inflation reports prior to that meeting, with CPI on January 11th, and PCE on January 26th. If both reports are in line with expectations, the FOMC will likely hint at the first rate cut in March.

With inflation at target over the last 6 months, my sense is the FOMC will reduce rates more than they currently expect. My guess is there will be around 5 rate cuts in 2024, and the first cut is likely in March.

I also expect the FOMC to start discussing slowing balance sheet runoff late in the year.

Here are the Ten Economic Questions for 2024 and a few predictions:

• Question #6 for 2024: What will the Fed Funds rate be in December 2024?
• Question #7 for 2024: How much will wages increase in 2024?

• Question #8 for 2024: How much will Residential investment change in 2024? How about housing starts and new home sales in 2024?
• Question #9 for 2024: What will happen with house prices in 2024?
• Question #10 for 2024: Will inventory increase further in 2024?