Three Fed interest-rate cuts this year? Yes, top banking economists say.
By Jeffry Bartash
The American Bankers Association predicts inflation will slow more slowly
Top economists at big U.S. banks predict the Federal Reserve will cut interest rates three times this year - with the first reduction in June - even though inflation is unlikely to slow much further in 2024.
The latest forecast by the American Bankers Association paints a picture of a robust U.S. economy, but one whose growth is likely to slacken off from last year's pace.
ABA economists predict gross domestic product, the official scorecard for the economy, will decelerate to a 1.7% rate in 2024 on a fourth-quarter to fourth-quarter basis, compared to 3.1% in 2023.
The number of new jobs added each month should also shrink to less than 150,000 a month on average in 2024, from 250,000-plus in 2023, the ABA forecasts.
A somewhat softer U.S. economy should nudge inflation down even further, the ABA said, but not quite as fast as previously expected.
The ABA sees the personal-consumption expenditures price index, the Fed's preferred inflation barometer, ending 2024 at 2.4% - the same as the current 12-month rate.
The yearly increase in the core PCE index, which omits food and energy prices, is expected to decelerate to 2.3% by year-end, from 2.8% presently. The core rate is seen by the Fed as the best predictor of future inflation.
The Fed is aiming to push the rate of inflation down to 2% a year, similar to how fast it rose annually in the decade prior to the pandemic.
The ABA does not expect the Fed to meets its inflation target until early 2026.
Still, ABA economists believe current U.S. interest rates are too high, giving the Fed the scope to reduce them.
The Fed jacked up its key short-term policy rate to a more than two-decade high in 2022 and 2023 to try to quell high inflation. At current levels, they are high enough to depress the economy.
"Think of these cuts not as cuts to make policy more accommodative. They are cuts to make policy less restrictive," said Simona Mocuta, head of the ABA's panel of economists and chief economist of State Street Global Advisors. "That is a huge difference."
-Jeffry Bartash
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
03-28-24 1251ET
Copyright (c) 2024 Dow Jones & Company, Inc.-
What History Tells Us About the Fed’s Next Move
-
What’s Happening In the Markets This Week
-
Alphabet’s New Dividend: What Investors Need to Know
-
Going Into Earnings, Is Palantir Stock a Buy, a Sell, or Fairly Valued?
-
Going Into Earnings, Is Eli Lilly Stock a Buy, a Sell, or Fairly Valued?
-
What’s the Difference Between the CPI and PCE Indexes?
-
5 Stocks to Buy That We Still Like After They’ve Run Up
-
Markets Brief: Stocks Are Starting to Look Cheap Again
-
AbbVie Earnings: Next-Generation Immunology Drugs Help Offset Humira Biosimilar Pressure
-
Exxon Earnings: Ignore Earnings Shortfall as Long-Term Growth and Improvement on Track
-
American Airlines Earnings: We See Costs Overshadowing Market Share This Year
-
Snap Earnings: Advertising Growth and Snapchat+ Drive Monetization
-
STMicro Earnings: We Still See an Attractive Margin of Safety Despite a Poor First-Half Forecast
-
Alphabet Shares Surge on Strong Earnings, Dividend Surprise
-
Microsoft Earnings: Firm Beats Forecasts on Strong AI and Cloud Demand
-
PG&E Earnings: Near-Term Regulatory Certainty Supports Industry-Leading Earnings Growth