- Fixed Income Portfolio Manager
Norway, Intermediary
ChangeThe views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
The US Federal Reserve (Fed) kept policy rates on hold for a third consecutive time at its December 2023 policy meeting. The Fed’s updated projection materials forecast a slightly faster pace of rate cuts than the consensus expected although still fewer than is currently reflected in market pricing. During Chair Jerome Powell’s post-meeting press conference, he cautioned about the stickiness of services inflation and left some room for the possibility that another increase in policy rates could be warranted. In its updated Summary of Economic Projections (SEP), most Federal Open Market Committee participants projected 75 basis points (bps) of rate cuts in 2024 compared to 115 bps priced into fed funds futures markets just before the meeting. The Fed also lowered its growth and inflation forecasts.
What did the Fed get wrong in 2023?
Two key pieces of economic data will end the year much stronger than the Fed anticipated a year ago. The US economy is on track to grow at 2.4% in 2023, based on real GDP, well above the Fed’s initial forecast of 0.5%. And the unemployment rate ended November at 3.7% compared to the Fed’s predicted 4.6%. These results are remarkable given many prognosticators were calling for the US economy to enter recession, especially considering the regional banking sector turmoil in March that may very well have deteriorated into a crisis if not for the swift actions by policymakers (including the Fed’s Bank Term Funding Program) to restore confidence and add liquidity to the financial system. Expansionary fiscal policy and elevated home prices have also served to support consumer spending for now, though I’m skeptical that this strength will persist into 2024 and my leading indicators suggest the unemployment rate will increase from here.
Some Fed forecasts proved prescient
Core PCE inflation, the Fed’s preferred gauge, has moderated to 3.5% as of the end of October, matching the Fed’s end-of-2023 forecast from the December 2022 SEP, but is widely expected to end the year closer to 3%. While the deceleration is welcome, it would be premature for the Fed to declare victory and cut policy rates in short order. I expect core inflation to continue to move below 3% by the middle of 2024, assuming that coincides with the gradual increase in the unemployment rate I anticipate, paving the way for a pivot to easing policy rates. The Fed also came close to nailing its projection for its target fed funds rate. The central tendency — which excludes the three highest and three lowest projections — in the SEP ranged from 5.1% to 5.4% compared to the effective rate of 5.3% at this writing.
Final thoughts for Fed watchers
I don’t have strong conviction as to whether the Fed or market pricing will prove more accurate in terms of rate cuts for 2024. Certainly, policy will be less restrictive in 2024 and I expect the Fed to feel more emboldened to cut policy rates well in advance of inflation falling to its stated 2% target. While the Fed’s projections are not set in stone and will adjust to evolving economic data and financial conditions, it did an admirable job of managing policy through 2023. With more clarity that inflation pressures were attributed primarily to supply constraints as opposed to excess demand, I think the Fed should have more confidence in its projections heading into the new year, absent an exogenous shock.
Expert
Related insights
Showing
of
Insights Posts
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Trump 2.0: Time to curb your enthusiasm?
Continue readingMultiple authors
event
12
min
Article
2025-12-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Listening to voters’ economic concerns should mean less fiscal spending
Continue readingBy
event
6
min
Article
2025-11-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Trump 2.0: US election market impacts
Continue reading
event
21
min
Podcast
2025-11-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The revenge of the monetarists
Continue readingBy
event
5
min
Article
2025-06-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
highlight_off
You've been subscribed
Thank you for subscribing. You can manage your subscription using the links provided in any of our subscription emails.
Read next
Showing
of
Insights Posts
Fiscal policy
Interest rates
Tactical allocation
Content CoE Program Global Program
iStrat
Multi-asset
Outlook
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Trump 2.0: Time to curb your enthusiasm?
How does an allocator navigate markets when so much about the policy landscape is unknown? Our Investment Strategy & Solutions Group offers their views on the new political realities in the US and their global implications, including for equities, bonds, and commodities.
Multiple authors
event
12
min
Article
2025-12-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Listening to voters’ economic concerns should mean less fiscal spending
Fixed Income Portfolio Manager Brij Khurana explains the likely economic and market impacts of Trump administration policies, including potential winners and losers from drastic fiscal spending cuts.
By
event
6
min
Article
2025-11-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Trump 2.0: US election market impacts
In the wake of the US election, macro strategists Juhi Dhawan and Michael Medeiros join host Thomas Mucha to discuss the market, policy, and geopolitical implications of Trump 2.0.
event
21
min
Podcast
2025-11-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The revenge of the monetarists
Fixed Income Portfolio Manager Brij Khurana makes the case for a monetarist explanation for moderating inflation.
By
event
5
min
Article
2025-06-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Interest rates
Monetary policy
Outlook
Economic cycle
Fiscal policy
Macro
USA
Japan
Europe
France
Germany
Italy
United Kingdom
Fixed income
Macro hedge funds
Credit
Government bonds
Investment grade
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Governments have been slow to reduce their fiscal deficits — it could cost them
Our expert explores the investment implications of continued excessive deficit spending by G7 countries.
event
4
min
Article
2025-06-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Economic cycle
Interest rates
Monetary policy
Fixed income program
Inflation
Fiscal policy
USA
Credit
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The Fed’s lessons learned from its COVID response
Fixed Income Portfolio Manager Brij Khurana breaks down the central bank's policy decisions during the pandemic and explains how they continue to affect financial markets.
By
event
6
min
Article
2025-04-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Biden 2.0: National security and investment themes
The geopolitical and investment implications of a potential second Biden term.
By
event
5
min
Article
2025-04-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Fiscal policy
Volatility
Monetary policy
Fixed income program
Inflation
Interest rates
Americas
Fixed income
Credit
Government bonds
High yield
Investment grade
Quick Take
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
FOMC: Stable policy amid market volatility
The Fed is holding steady amid market turmoil. See our quick notes on the FOMC's March policy statement, forecasts, and the Fed chair's press conference.
event
Quick Take
2025-03-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The Trump/Biden rematch: Market implications of unprecedented policy divergence
Macro Strategist Juhi Dhawan discusses six key areas of policy debate in this year's US election that she expects will matter most to markets, from the tax and spending plans to trade and geopolitics.
event
Article
2025-03-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Economic cycle
Interest rates
Monetary policy
Fixed income program
Inflation
Fiscal policy
USA
Credit
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Is the US economy really that different since COVID?
US economists have been touting the resilience of the post-COVID economic rebound. Brij Khurana dissects several key economic indicators to see what's really changed since 2019.
By
event
Article
2025-03-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Multi-Sector Credit
Fixed income
Macro
Global Credit Plus
Credit
Total return
Fiscal policy
Government bonds
Investment grade
Fixed income program
Americas
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Too much focus on Fed, not enough on fiscal
Current US fiscal and monetary policy stances argue for risk taking in fixed income.
event
Article
2025-02-07
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
URL References
Related Insights
legal Information
Contact Us
© Copyright 2024 Wellington Management Europe GmbH. All rights reserved.
WELLINGTON MANAGEMENT FUNDS ® is a registered service mark of Wellington Group Holdings LLP.
Wellington Management Europe GmbH. Registered office: Bockenheimer Landstraße 43-47, 60325 Frankfurt am Main, Germany. T: +49-69-677761-500. VAT-number DE 326304943 (Umsatzsteuer-Identifikationsnummer) Commercial Register of the local court Frankfurt am Main (Handelsregister des Amtsgericht Frankfurt am Main), HRB 115460 .
Wellington Management Europe GmbH, is authorised and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht)
For professional investors and intermediaries only. This content is not suitable for a retail audience.
we’d love your feedback!
Help us improve our website. For every short survey taken, we give 2 to the Wellington Management UK Foundation to support educational charities helping economically disadvantaged children in EMEA.