PGIM predicts the U.S. Federal Reserve will raise policy rates three times in 2024 instead of cutting them [1].
This forecast contradicts broader market expectations of rate reductions and suggests a more volatile economic path for the U.S. economy over the next 18 months.
Prudential Financial's asset-management division, PGIM, shifted its outlook from expecting rate cuts to forecasting three hikes for the current year [2]. The firm said it cited a surprisingly strong U.S. economic recovery and inflation that has hardened due to oil-price shocks [1]. According to the report, these factors will create overheating and force the Federal Reserve to use rate hikes as a preventive measure [1].
Despite the projected increases in 2024, PGIM expects a reversal in 2025. The firm said the Fed will move into a rapid cutting cycle next year, which would result in final rates settling in the low-3% range [1].
The report also highlighted the role of new Fed Chair Kevin Warsh. PGIM said Warsh would gain sufficient political justification if he defines these rate increases as preventive measures against inflation, and government bond volatility [1].
This shift in projection comes as investors have largely anticipated a pivot toward lower borrowing costs. By predicting a period of further tightening followed by a sharp decline, PGIM suggests the Fed is prioritizing the stabilization of prices over immediate growth incentives, a strategy that could impact everything from mortgage rates to corporate lending.
“PGIM predicts the U.S. Federal Reserve will raise policy rates three times in 2024 instead of cutting them.”
The PGIM outlook suggests a 'double-peak' scenario where the Federal Reserve must first combat a second wave of inflation—driven by energy costs—before it can safely lower rates to support long-term growth. If the Fed follows this path, it indicates that the 2024 economic recovery is stronger than policymakers initially believed, potentially delaying the relief that borrowers and markets are seeking.
