UDN - Bill Ackman sees Fed rate cuts as soon as first quarter of 2024

2023-11-29 06:21:54 ET

Dovish signals from the Federal Reserve are reinforcing what traders have been pricing in since the end of October, when the central bank held rates for the second consecutive meeting and a dot plot - that suggested one more hike - was called into question . Since then, stocks have risen at a rapid clip, with the S&P 500 ( SP500 ) climbing out of correction territory in only 16 trading sessions , marking its fastest comeback since the 1970s. Besides lifting markets and risk assets, the prospect of cheaper money saw the 10-year Treasury yield drop overnight to below 4.30%, after touching 5.00% just prior to the last Fed meeting.

The latest: Two of the most hawkish FOMC officials, who led the charge for higher rates last year, are getting comfortable with holding policy steady, backing expectations that the central bank's hiking cycle is done. Fed Governor Christopher Waller said Tuesday that he's "increasingly confident" that monetary policy is now in the right spot to slow the economy and bring inflation back down to the 2% target. Governor Michelle Bowman also stopped short of endorsing an increase next month, conditioning the need for further hikes only on incoming data that "indicate progress on inflation has stalled or is insufficient to bring inflation down to 2% in a timely way."

Investors appear to be even more enthusiastic, especially armed with the economic data to support them, including recent soft numbers on inflation and the job market . Odds that the central bank will even cut its target policy rate the middle of 2024 have been on the rise, and some, like Pershing Square's ( OTCPK:PSHZF ) Bill Ackman, are now even pricing in rate cuts as soon as the first quarter. As the conversation shifts from hikes to cuts, the U.S. dollar is on track to hit its lowest level in months , reflecting the revised rate expectations.

"What's happening is the real rate of interest, which is what impacts the economy, keeps increasing as inflation declines," Ackman said on The David Rubenstein Show . "What's going to be interesting is what happens when people have to reprice their debt. I think that can have sort of a cliff-like effect and you're certainly seeing that in real estate... I think there's a real risk of a hard landing if the Fed doesn’t start cutting rates pretty soon."

Currency considerations: "Fed-driven dollar weakness will be a story for 2024," writes ING Economic and Financial Analysis . "The most likely path to a weaker dollar will probably have to come from softer U.S. macro data. Given our house view that a US slowdown is more likely in the next quarter rather than this one, we therefore expect EUR/USD to end the year around this 1.05/1.06 area and USD/JPY to end the year not far from 150. Into 2024, however, we expect the short end of the U.S. curve to start moving lower ahead of Fed easing next summer and the dollar to turn lower."

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