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All eyes are on Jerome Powell on Wednesday as investors await the Federal Reserve Board’s near-certain decision to cut the federal funds rate for the first time since the start of the COVID-19 pandemic. While some investors predict a 25-basis-point reduction—the smallest viable amount—others are looking for a larger cut of 50 basis points.
Just as important: Longer term, investors see this week’s cut as the beginning of a downward trend. Current interest rate futures prices show that the federal funds rate is expected to fall to slightly less than 3% by September 2025 — down from around 5.25% today (see the chart below).
Interest Rates Expected to Fall to Around 3% One Year From Now
Source: Bloomberg, calculations by Horizon Investments, data as of September 16, 2024. Federal Funds Implied Rate estimated using Secured Overnight Financing Rate (SOFR) futures contracts. Contact us for more information.
The upshot: The market is preparing for the Fed to cut rates consistently at each of its next ten meetings.
That anticipated steadiness suggests investors are looking for a relatively smooth path for the economy and the jobs market in the coming year. We will look for opportunities in the falling rate environment while continually monitoring for changes in expectations that could indicate unexpected potholes ahead.
Information obtained from third-party sources is believed to be reliable but has not been vetted by the firm or its personnel.
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