Market participants, including both investors and traders, have their attention keenly set on the upcoming Federal Open Market Committee (FOMC) meeting, slated for Dec. 13, 2023. There is widespread speculation about whether Fed Chair Jerome Powell will continue to uphold the current elevated benchmark interest rate. Concurrently, Jim Grant, renowned for his four-decade-long work on Grant’s Interest Rate Observer, holds the conviction that interest rates will stay at a “higher for much, much, much, much longer” level.
Economic Expert Jim Grant Anticipates Persistent High Interest Rates Post-FOMC
Presently, the federal funds rate stands between 5.25% and 5.50%, reaching its highest point in 22 years. This benchmark rate, crucial for banks and other financial institutions for inter-lending, serves as a pivotal mechanism for central bank officials in steering U.S. monetary policy. This week, the investment community is eagerly anticipating the Federal Open Market Committee’s (FOMC) announcement, as well as Fed Chair Jerome Powell‘s press remarks after the meeting.
Current market sentiment does not foresee a rate increase by the Fed in the imminent meeting. As per CME’s Fedwatch Tool, the likelihood of a rate hike stands at a mere 2.9%. Conversely, the odds favor the rate remaining unchanged at 97.1% as of Dec. 10, 2023. Additionally, a significant number of market observers predict that the U.S. central bank will have to reduce rates soon. Wall Street Journal journalist Justin Lahart, on Dec. 9, opined that the Fed “can’t put off preparing for rate cuts.”
According to Lahart’s analysis, a shift towards reduced rates seems imminent, with early 2024 likely seeing Powell needing “to start preparing for it.” Yet, not all share this view of impending rate reductions. JPMorgan’s leader Jamie Dimon anticipates an increase in interest rates and a looming recession. On December 9, esteemed financial author and publisher Jim Grant shared insights with Forbes, asserting his belief in persistently high rates for an extended duration.
With over four decades of monitoring the U.S. central bank through his publication, “Grant’s Interest Rate Observer,” Grant voiced concerns in his Forbes interview about an impending economic crisis, highlighting the U.S. economy’s burgeoning debt problem, worsened by years of almost zero interest rates. He anticipates the federal funds rate remaining “higher for much, much, much, much longer.”
It is the historical track record, it is the pattern, that interest rates exhibit a tendency to trend over generation-long intervals.
Still, contrary opinions suggest a shift towards rate reductions by the Fed in mid-2024. In an interview with CNN, KPMG’s chief economist Diane Swonk remarked, “We’re moving into higher-for-long-enough.” Additionally, futures markets indicate a high likelihood of a rate cut by the Fed in March 2024.
As the financial sector awaits the FOMC’s verdict, views are sharply divided. In the meantime, Grant expresses concern over the credit market, burdened by years of inexpensive debt affecting businesses, consumers, and governments. Grant’s opinion is very similar to Dimon’s who emphasized at the 2023 New York Times Dealbook Summit he wasn’t trying to scare people.
What do you think about Jim Grant’s insights? Share your thoughts and opinions about this subject in the comments section below.