Soft Landing Remains A Possibility, Even If Historically Elusive

In his annual address from Jackson Hole on Aug. 23, Jerome Powell, chair of the Federal Reserve, sealed the deal on a Sept. 18 rate cut for all intents and purposes.

“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

The bigger questions going forward relate to the second quote from Powell. How gradual will the Fed’s path of rate cuts be? And at what level of the fed funds rate will the Fed end the easing cycle?

The bond market remains priced for a more aggressive pace in the coming months, with fed funds futures implying 100 basis points of rate cuts by year-end. This would obviously require at least one 50- basis-point move over the final three FOMC meetings of 2024. As for the terminal rate, forward short-term rates imply the cycle ending in late 2025/early 2026 in the 3.0%-3.25% range.

Powell’s comments were largely in line with the minutes of the July 31 FOMC meeting, which were released two days prior to his speech. In the minutes, the “vast majority” of participants felt it “would likely be appropriate to ease policy at the next meeting” if the data evolved as expected. The tone in official Fed communication in recent weeks, as well as public comments from Powell and other leaders, conveyed a perception of more balanced risks related to inflation and labor market health.

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Jason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi.

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