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FameEX Hot Topics | Major Bank ING Foresees Federal Reserve Rate Cuts Beginning in the Second Quarter
2023-12-05 16:24:20
ING, a prominent player in the global financial sector, predicts that the Federal Reserve is likely to start reducing interest rates in the second quarter of the coming year. This prediction comes from James Knightley, the chief international economist at ING, who projects a reduction of 150 basis points (bp) in 2024 followed by a further cut of 100bp in early 2025. Knightley's forecast is grounded in the current economic trajectory of the U.S., suggesting that the Fed may not need to tighten its policy further.
In a detailed analysis, Knightley outlines the basis for his prediction. He observes key indicators in the U.S. economy, such as moderate growth, decreasing inflation, and a deceleration in the labor market. These signs, he argues, are in line with the Federal Reserve's objectives, implying that additional monetary tightening might be unnecessary. Consequently, he anticipates rate reductions beginning from the second quarter onward.
A significant observation by Knightley is the increase in initial jobless claims to 218,000 last week, coupled with a trend towards higher ongoing claims while initial claims remain relatively low. He interprets this as a reluctance among firms to dismiss workers, alongside a reduced propensity to hire, suggesting a labor market that is cooling but not collapsing. Knightley further delves into the issue of inflation, referring to the October report on personal income and spending. The report shows a 0.2% month-on-month rise in both incomes and the Core PCE deflator, leading to a drop in the annual core inflation rate to 3.5% from 3.7%. While consumer spending remains stable, Knightley cautions about a dimmer future outlook. The early part of 2024, according to Knightley, could be challenging due to declining real household disposable incomes. He raises concerns over increasing credit card delinquencies and the burden of student loan repayments, factors that could adversely affect economic growth at the start of 2024. Knightley's analysis is a comprehensive examination of the U.S. economic situation, offering a well-reasoned forecast of the Fed's likely monetary policy actions. His insights shed light on labor market trends, inflation dynamics, and consumer spending patterns, all crucial in understanding the potential direction of future rate cuts by the Federal Reserve. His perspective provides a holistic view of the economic factors that are likely to influence the Fed's decision-making in the near future. Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.
