Some investors believe an expected recession will force the Federal Reserve to loosen monetary policy next year, even as the central bank projects it will raise rates higher than it previously anticipated and keep them there longer as it fights to crush inflation.
Yields on the benchmark 10-year Treasury, which move inversely to prices, recently stood around 3.5%, compared with over 4.2% earlier this year. The S&P 500 has risen by 11.4% in the fourth quarter but remains down some 16% for the year. U.S.
Among those forecasting lower rates are fund manager Vanguard, Deutsche Bank and Bank of America, with the last two forecasting a recession next year and predicting that the Fed will start cutting rates by December 2023. Christopher Alwine, head of the global credit team in Vanguard Fixed Income Group, believes the economy will fall into a shallow recession in the second half of next year, prompting the Fed to cut rates by the fourth quarter of 2023.
Plenty of investors believe the Fed will stick to its guns, even if the economy wobbles. The Fed's economic projections showed rates dropping to 4.1% in 2024, higher than estimated three months ago.
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