Priya Patel
TLDR: Barclays analysts predict that the Federal Reserve will begin implementing consistent interest rate cuts starting in March. They believe that the Fed will reduce rates by 25 basis points at every other meeting, resulting in a drop in the Fed funds rate to 4.25% to 4.50% by the end of the year. The analysts also mention that their rate cut projection is based on economic considerations and the inflation outlook, rather than political factors such as upcoming elections. This forecast has been revised from an initial projection of rate cuts in June.
Barclays analysts expect the Federal Reserve to start implementing consistent interest rate cuts as early as March of this year. The analysts predict that the Federal Open Market Committee (FOMC) will go into a more accommodative monetary campaign, reducing rates by 25 basis points at every other meeting.
The analysts believe that the Personal Consumption Expenditures (PCE), an inflation indicator preferred by the Fed, will average 1.9% on a seasonally adjusted annual rate for the last six months of 2023. With the PCE dropping within the Fed’s goal of 2% inflation, the bank expects the Fed funds rate to drop to 4.25% to 4.50% by the end of the year and about 3.25 to 3.50% by the conclusion of 2025. Currently, the Fed funds rate stands at 5.25% to 5.50%.
The analysts view their rate cut projection as a recalibration of the nominal policy rate in response to lower inflation. They emphasize that their projection is based on economic considerations and primarily on the inflation outlook, rather than political factors such as the upcoming elections. Barclays’ rate cut forecast has been revised from an initial projection of rate cuts in June, indicating an earlier expected start to the accommodative monetary campaign.
Jan van Eck, CEO of investing giant VanEck, has recently stated that falling interest rates will be one of the key drivers behind future gains for Bitcoin. He notes that Bitcoin and gold, as stores of value that do not generate interest, perform well in relation to interest rates. With interest rates expected to decrease, van Eck believes that the macro behind Bitcoin and gold is strong.
