Capital Insights: Interest Rate Cut Expectations [January 2024]

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VIDEO TRANSCRIPT:

Hi, I’m Trent Von Ahsen, partner with Cedar Point Capital Partners. Welcome to the new year and a new edition of Capital Insights!

This month, we’re taking a look at consumer expectations for lower interest rates, and how those expectations could impact the economy, whether they happen or not.

As we know, interest rates have been higher since 2022, when the Fed began its hiking cycle to help fight inflation following the pandemic. Today, with inflation back near its historic average, some believe the Fed will begin cutting rates in the months ahead. Take a look at Figure 1:

Courtesy of the University of Michigan’s Consumer Survey, in this chart – going back to the year 2000 – we see proportions of consumers expecting lower interest rates in the next 12 months. Nearly 30% of respondents this past December said they expect lower interest rates over the next year.

And that’s up from just 12% the month prior. It’s also the highest expectation level since 2020.

While the Fed’s decision on the interest rate path forward, remains to be seen, even the possibility of rate cuts could stimulate the economy. For instance, the housing market could pick back up if homebuyers believe they can refinance to a lower rate in the future. Likewise, businesses could decide to expand operations with lower financing costs on the horizon.

Investors should start reviewing their positioning now, for the prospect of lower interest rates, with the biggest opportunities in cash investments and fixed income positions.

If you have questions about this video or your portfolio, reach out and let’s start a conversation.

My name is Trent Von Ahsen, I look forward to seeing you right here next month for our latest edition of Capital Insights.

Stay curious, stay mindful of your goals, and we’ll see you next time.

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