Federal Reserve To Implement Six Rate Cuts In 2024 Amid Economic Slowdown, Says ING

In light of a decelerating economy, ING Economics is forecasting a series of interest-rate reductions by the Federal Reserve in 2024. This strategic move, involving six rate cuts, is a response to the current economic slowdown, with the first cut expected in the second quarter of 2024 and continuing into 2025.

The rationale behind these anticipated cuts stems from a combination of factors, including subdued inflation, a less dynamic job market, and a less optimistic consumer spending outlook. James Knightley, the chief international economist at ING, explained, “We have modest growth and cooling inflation and a cooling labour market — exactly what the Fed wants to see.”

Knightley anticipates that the Fed will commence the rate cuts in the next year’s second quarter, proposing six reductions of 25 basis points each, amounting to a total of 150 basis points. He also foresees the continuation of this trend into 2025, with an additional four rate cuts of 25 basis points each. This projection contrasts with the futures market, which suggests a 125-basis-point reduction next year.

These cuts are expected to bring the effective Federal Funds rate down to approximately 3.83% by the end of 2024 and to 2.83% by the end of 2025, from the current rate of 5.33%. Although the rate cuts are designed to stimulate the economy, their impact is typically delayed, often taking between 12 to 18 months to be fully realized.

Knightley’s forecast suggests a resilient economy that may avoid immediate drastic cuts to 0%, a measure usually taken in severe economic downturns and recessions. Regarding the job market, Knightley said, despite its current stability, with weekly jobless claims maintaining a low range around 200,000, it has shown signs of cooling. Challenges for consumer spending in 2024 are also anticipated due to stagnant real household incomes, increasing credit card delinquencies, and the resumption of student loan payments.

Overall, the Federal Reserve’s anticipated interest-rate reductions in 2024 are a response to the current economic slowdown and aim to stimulate the economy. While the exact impact of these cuts may take time to materialize, they are expected to bring down the effective Federal Funds rate and support economic growth.