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A recent forecast from UBS says interest rate cuts are coming, and soon.

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The Swiss Bank projects that the U.S. Federal Reserve will “cut interest rates by as much as 275 basis points in 2024, almost four times the market consensus, as the world’s largest economy tips into recession.”

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In stark contrast, Federal Reserve Chair Jerome Powell, speaking at a conference for the International Monetary Fund, ordered his colleagues to “close the fucking door.” 

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His proclamation had nothing to do with interest rates. Powell was addressing a clamor of climate change protestors just outside the meeting’s chambers. But his profane message did dovetail nicely with the rest of what he had to say.

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To summarize—nothing to see here folks. Pay no attention to the man behind the curtain. Close the fucking door. 

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Jingle Bells, Got No Tells

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To wit, if the Fed has a plan, they’re doing a kickass job of hiding it. 

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The Dow surged some 500 points this week in light of the UBS projections and in reaction to the continued cooling of inflation rates, both of which quelled fears that another interest rate hike might be looming on the near horizon.

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The Fed, on the other hand, feeds on our darkness. Just kidding. They really don’t give a shit about our darkness. They only care about inflation.

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Last week, the Federal Reserve held a meeting in which it resolved to hold current interest rates steady at 5.25%-5.5%. In other words, if you were expecting relief this holiday season, you’ll have to get it from your eggnog, cause it ain’t comin’ from the Fed.

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Jerome Powell’s potty-mouth may have taken center stage at the IMF conference, but the prevailing sentiment was really about not getting your hopes up too high. In the face of a cooling job economy, inflation fell from 3.7% in September to 3.2% in October. But Powell warned that we have “a long way to go” before we reach the Fed’s target rate of 2%.

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The Fed Reserves the Right to Crush Us

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Powell warned that we are not out of the inflationary woods yet, that a lag effect could yet produce unforeseen fluctuations in currency value, and that he simply isn’t yet convinced that the current monetary policy has been restrictive enough to prevent another surge in inflation. 

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Powell would also not rule out a monetary policy response to emergent market conditions like supply shocks. Clearly, Powell intended to throw cold water on the idea of rate cuts, and perhaps even stoke the lingering fear of additional rate hikes. 

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Meanwhile, market analysts seem fairly convinced that rate cuts are coming—likely in the midst of the fabled soft landing we’ve heard so much about these past few months. (Translation—recession, but like, not the worst recession ever).

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These conditions, say UBS, may drive interest rates back down to as low as 2.5-2.75% by the end of 2024. Goldman-Sachs says cuts will be far less dramatic, likely settling closer to 3.5-3.75%, and even then, not until mid-way through 2026. Morgan Stanley says we’ll avoid a recession, but that higher than expected unemployment rates will push for even more aggressive rate cuts than those suggested by UBS.

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Soooo….we’re all over the map there, aren’t we? How can so many smart people have such vastly different expectations for the Federal Reserve’s plan?

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Plan 9 From the Marketplace

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Well, the guests on this week’s episode of Let’s Talk Markets shared a theory with us—the Federal Reserve has no plan. They have no idea what their next move is. 

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That’s just one of several takeaways from our conversation with market commentators Claudia Sahm, Ophir Gottlieb and Kyla Scanlon. In a wide-ranging conversation where our panelists offered a number of nuanced positions, one they all agreed on was that the Federal Reserve—the institution responsible for leading the charge on monetary policy—couldn’t tell you what comes next even if they wanted to…which they obviously don’t.

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Another consensus view is that this uncertainty regarding what the Fed will do next, and what the economy will do next, has led to a large amount of volatility. As humans do, we’re filling in the darkness with fear and uncertainty, and this is manifesting in the market in all sorts of unexpected ways.

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In fairness, none of us really knows what comes next, but the rest of us aren’t in the position to crush everyday American consumers under the weight of interest rates that are at a 22-year high. And the Fed simply won’t tip its hand either way for the American consumers. 

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So we continue to shop, and we continue to accumulate debt, and we continue to hope against hope that the shit won’t hit the fan. But planning for what comes next is a near impossibility. 

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We’ve said it a few times, but we have to say it again. 

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We couldn’t have predicted how the pandemic would play out for our economy, and we’re still living in that economy—that confused, post-pandemic aftermath from which data are still being considered, lessons are still being learned (or ignored), and moments of inflection are still being processed. In this time of blurry uncertainty, you should anticipate volatility. It’s clear that the Fed does.

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But that’s about all they’ll tell you. Other than that, it’s all behind closed fucking doors.