The Fed's higher-for-longer strategy on interest rates is slowly crumbling. Welcome to higher-for-long-enough.

Investors are predicting that the Federal Reserve will cut interest rates in the first half of next year, despite statements from Fed Chair Jerome Powell and other officials denying any plans for rate cuts at this time. Some believe that rate cuts could potentially occur as early as the first quarter. Recent inflation figures have been positive, indicating a significant slowdown in economic growth compared to the previous quarter. Market futures suggest a 44% chance of a rate cut in March. The Fed has historically kept rates steady for a period before implementing cuts. While the timing of rate cuts is uncertain, many investors believe that the Fed’s strategy of maintaining higher interest rates for an extended period may not hold. Diane Swonk, chief economist at KPMG, expressed confidence in the possibility of rate cuts. The pace of rate cuts, if implemented, is expected to be gradual initially, with no expected return to very low rates. The Fed’s policy meeting this week is anticipated to conclude with steady rates and the release of updated economic projections reflecting a slower rate of inflation. The reasons behind the potential rate cuts, despite previous statements from Fed officials, may be attributed to the Fed’s data-dependent approach and market expectations. The announcement from China to strengthen fiscal policy next year follows concerns raised by Moody’s about the country’s credit rating due to challenges in its property sector and lower economic growth prospects. Chinese officials have pledged to expand domestic demand, stabilize foreign trade and investment, and cautiously strengthen fiscal policy. Fiscal policy refers to the use of taxation and government spending to influence the economy, while monetary policy refers to decisions made by central banks to control inflation and borrowing costs. The officials emphasized the importance of managing risks and preventing systemic risks. The article concludes with a list of upcoming events and announcements, including earnings reports, economic data releases, and interest rate decisions by the Bank of England and the European Central Bank.