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By Omar Mohammed
Reporter, Economy & Finance
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The Federal Reserve will likely cut rates this year, Katerina Simonetti, senior vice president of Morgan Stanley's Green Wave Wealth Management Group, said on Monday, a policy move that could bring down the cost of home loans.
Simonetti suggested that the central bank was done with raising rates and that their next policy move would be a slashing of the Fed's funds rate.
"We know we are not going to have any more rate hikes," Simonetti said on CNBC. "We know rates are on their way down; we just don't know exactly when this is going to happen."
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The Federal Reserve began raising rates in March 2022 to battle inflation that at one point soared to four-decade highs. The aggressive tightening of monetary policy elevated rates to their current 5.25 to 5.5 percent—the highest in more than 20 years— pushed up the costs of borrowing across the economy, including for home loans.
Mortgage rates, which hit their peak in October at about 8 percent, have been falling over the last weeks on the back of economic news that inflation has been cooling. The personal expenditure index (PCE) inflation metric, what the Fed focuses on when looking at how inflation is doing, jumped 2.6 percent in December on a year-over-year basis.
While this showed progress, it did not quite slow down enough to hit the Fed's 2 percent target, prompting the Fed to hold its funds rate at its current elevated level for the fourth time in a row.
Speaking to reporters on Wednesday, central bank chief Jerome Powell poured cold water on a possibility of a March cut that some investors had been hoping for even as he signaled that policymakers were probably finished with raising rates.
"If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year," Powell told reporters last week.
Some housing economists have suggested that mortgage rates are stabilizing and are potentially going to fall down even further than the mid-6 percent range they are at currently as soon as the Fed slashes rates.
Simonetti expects the first cut could come in June and that policymakers will reduce rates three times this year and was confident that there will be a reduction in borrowing costs in 2024.
"Zero [rate cuts] is highly unlikely because there are expectations that they're going to start and go into the easing mode," she said. "So, most likely we're going to see some rate cuts, but data will have to be supportive of this."
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