Chart of the Month; January 2024
Economic Perspectives: Consumers Start to Expect Lower Interest Rates
The University of Michigan publishes a monthly Survey of Consumers that assesses the confidence and expectations of U.S. consumers. There was a notable development in the December 2023 survey, as the percentage of consumers expecting lower interest rates over the next 12 months rose to nearly 30% from12% the prior month. Consumers and investors both expect rate cuts in the first half of 2024, and the Federal Reserve is hinting at the potential for rate cuts if inflation continues to ease this year.
This shift in expectations could impact consumer and business behavior. For example, the housing market could pick up if homebuyers believe they can refinance to a lower mortgage rate in the coming years. The combination of lower inflation and lower interest rates could also stimulate overall consumer spending and demand. With financing costs projected to decline, businesses may decide to start a new project, expand operations, or move forward with a project that has been on hold. Overall, lowering interest rates could stimulate demand and help stabilize the economy after the Fed’s aggressive rate hikes.
There are also steps investors can take to prepare for lower interest rates, with the biggest opportunities concentrated in the bond and cash portion of portfolios. Bond portfolios for example, might be repositioned to lock in today's yield for an extended period. With interest rates expected to fall from their recent peak, now is a good time for investors to review the fixed income portion of their portfolios. Please don’t hesitate to reach out with any questions.
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