Investors cheered the Federal Reserve's dovish tone as Fed officials hinted at three rate cuts in 2024. Policymakers now see the fed funds rate peaking at 4.6% in 2024, down from their previous projection of 5.1%.
EY Chief Economist Greg Daco called the Fed's pivot on Wednesday 'very important.'
"This acknowledgment that inflation has been falling faster than initially anticipated is a very good development... the first step is behind us," Daco told Yahoo Finance. "Now the Fed will have to calibrate how rapidly and to what extent it cuts rates."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
This post was written by Luke Carberry Mogan.
Video Transcript
SEANA SMITH: It's great to have you here in studio.
So I think investors are asking themselves this morning whether or not we're in the clear, if a soft landing is a sure bet at this point.
What do you think?
GREG DACO: Well, I think for 2023, that was the key question-- are we going to be able to achieve that soft landing?
I think we largely have achieved it for 2023.
We've seen an environment where inflation has come down within reach of the Fed's 2% target, and we have not seen the recessionary signals that were once feared at the start of the year.
The question for next year is whether that soft landing can be sustained.
And I think some of the easing signs from the Fed in terms of its pivot are encouraging in that sense.
But we have to be careful.
Cost fatigue and the labor market developments will still be the key drivers of economic activity as we navigate next year.
BRAD SMITH: I mean, we were talking with CEOs and one analyst yesterday of the retail sector just about where the state of the consumer is.
Does it feel like as the consumer is becoming even more cost conscious, that we are already seeing some of that-- or value conscious, I should say, in their words, are we already seeing cost fatigue start to show up?
GREG DACO: We're absolutely seeing cost fatigue.
I mean, that's the big disconnect between how the economy is doing and how people are feeling.
Consumer sentiment, business sentiment is quite depressed in this environment, and yet the economy is still moving at a decent pace.
It is slowing, but it is still moving forward.
I think that cost fatigue whereby the cost of everything is much higher than it was pre-pandemic is affecting how people feel and how they feel they're able to spend going forward.
We're still seeing as we saw in the retail sales data, that people are still spending more dollars.