The Fed Predicted to Adopt Dovish Monetary Policy in 2024
According to Deutsche Bank, the U.S. Federal Reserve is expected to adopt a dovish monetary policy stance in 2024. Analysts project that the Fed will cut interest rates by at least 100 basis points from their current levels of around 5.25-5.50%.
Easing Policy as Inflation Rate Decreases
ING also anticipates that the Fed will ease policy next year as economic growth and inflation rates slow down. With inflation expected to moderate, the central bank will have room to lower interest rates and support the economy.
This accommodative stance would weaken the U.S. dollar, providing a boost for risk assets like stocks and cryptocurrencies. When the Fed adopts a dovish stance, the dollar tends to decline, incentivizing investors to move into higher-yielding assets.
Forecasts Indicate Significant Rate Cuts
Deutsche Bank Research predicts that the Fed will deliver substantial rate cuts in 2024, with traders betting on a decline of at least 100 basis points from this year’s peak levels. Other central banks, such as the Bank of England and European Central Bank, are also likely to cut rates, albeit less aggressively than the Fed.
This expected policy easing follows the Fed’s increase in its benchmark rate from near zero in March 2022 to the current range of over 5.25% to 5.5%.
Fed’s Monetary Policy Pivot to Support Growth
Economists widely expect inflation to continue decreasing as supply chain pressures ease and demand moderates. This lower inflation rate will enable the Fed to shift its focus toward supporting economic growth and employment rather than solely prioritizing price stability.
Although the base case is for Fed rate cuts and dollar weakness, there are still risks to consider. Any resurgence in inflation would force the Fed to reconsider its easing policy. Analysts also highlight potential shocks like higher oil prices, slower Chinese growth, or stronger U.S. economic data as threats to expectations of a weaker dollar.
Hot Take: A Constructive Outlook for Stocks and Cryptocurrencies
Traders are currently pricing in a dovish shift by the Federal Reserve in 2024. As the most influential central bank globally, the Fed’s monetary policy stance often sets the tone for risk sentiment and asset prices worldwide. The projected easing cycle presents a constructive backdrop for stocks and cryptocurrencies next year.
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