In a report released on Thursday, ING Economics stated that the US economy is showing clear signs of slowing, which means the Federal Reserve will cut interest rates at least six times in 2024.
Currently, the futures market suggests that the Federal Reserve will cut interest rates by 125 basis points next year.
In the view of James Knightley, Chief International Economist at ING Economics, slowing inflation, cooling job markets, and deteriorating consumer spending prospects mean that the Federal Reserve will need to cut interest rates more significantly than market expectations.
"Moderate economic growth, cooling inflation, and a cooling labor market are exactly what the Federal Reserve wants to see," said Knightley. "This should confirm that the Federal Reserve does not need to further tighten policy, but the outlook looks increasingly bleak."
Knightley stated that the US job market has significantly cooled down, and although weekly initial claims for unemployment benefits remain stable at low levels, the number of new claims for unemployment benefits is increasing. He pointed out that fundamentally, the signal conveyed by this is that companies are unwilling to lay off workers, but they are also less willing to hire new workers. That is to say, more evidence suggests that the labor market is cooling down rather than collapsing.
According to data released on Thursday, as of the week ending November 25th, the number of first-time jobless claims in the United States increased by 7000 to 218000. As of the week ending November 18th, the number of people continuously applying for unemployment benefits has risen to 1.93 million, the highest level since November 2021.
Knightley also stated that although consumer spending is stable, it will face a more difficult path in 2024 as actual household disposable income shows signs of weakness, credit card delinquency rates rise, and student loan payments further intensify pressure.
The Federal Reserve may cut interest rates six times next year
Knightley predicts that the Federal Reserve will begin cutting interest rates in the second quarter of next year, with a total of six cuts of 25 basis points each time, totaling 150 basis points. In 2025, there will be at least four interest rate cuts of 25 basis points.
Knightley's expected rate cut will lower the effective federal funds rate to around 3.83% by the end of 2024, 2.83% by the end of 2025, and currently 5.33%.
It is worth noting that although Knightley's expectations for interest rate cuts are higher than the market's general expectations, he is far from being the most radical analyst on Wall Street.
As the boldest investment bank on Wall Street, UBS predicted last month that it may cut interest rates by at least 275 basis points by the end of next year as the Federal Reserve shifts towards a "comprehensive easing" model.
Knightley's expectation of the Federal Reserve gradually lowering interest rates is encouraging as it indicates that the US economy will remain resilient. When the US economy slows down significantly and enters a recession, the Federal Reserve often lacks patience in lowering interest rates.