Key Takeaways:
- Analyst Jim Bianco believes the Federal Reserve may not lower interest rates in the current year.
- He suggests that high interest rates are not causing significant harm to the economy.
- Bianco argues that the conditions required for a rate cut to be warranted have not been met.
- According to him, interest rates have not decreased to a level that would result in substantial economic damage.
Jim Bianco, head of Bianco Research, suggests that the US may not see any rate cuts from the Federal Reserve throughout 2024. Initially considering the possibility of up to two rate cuts at the start of the year, Bianco now leans towards the zero camp, implying no rate cuts for the time being. He attributes this stance to the observation that although interest rates are high, they haven’t caused significant damage to the economy. Bianco employs the Wall Street adage that rates continue to rise until something breaks, yet he argues that interest rates have not reached a level where substantial economic damage occurs. Despite some cracks, such as those seen in commercial real estate, the overall economy appears to be faring well. Additionally, Bianco points out that the economy managed to navigate through a period of 10-year Treasury yields exceeding 5% in October, and has remained relatively robust with the Fed funds rate in the 5.25% to 5.5% range.
According to Bianco, interest rates still have room to rise before reaching a point where they significantly impact the economy. Despite the high rates, earnings haven’t suffered, with 78% of companies surpassing expectations by a median of 7%, as per Fundstrat data. Recent economic indicators, including strong GDP growth, robust job numbers, and increased consumer spending, suggest that elevated rates have not had a detrimental effect. Additionally, higher-than-expected inflation has diminished the necessity for immediate Fed rate cuts. Bianco highlights that for the Fed to consider lowering rates, they typically seek unmistakably weak economic conditions and an inflation rate of 2%. Currently, neither scenario is evident, with conditions leaning towards the opposite, supporting the argument for maintaining “higher for longer” interest rates throughout 2024. As a result, Bianco assesses the likelihood of rate hikes this year to be less than 50%.