According to ING Economics, the Federal Reserve is expected to lower interest rates six times in 2024. In reaction to the US economy’s slowdown, interest rates are projected to be lowered starting in the second quarter and going all the way through 2025. More interest rate reduction will be required than the market presently believes due to lowering inflation, a cooling labour market, and a worsening outlook for consumer spending, according to ING Economics.
The senior international economist at ING Economics, James Knightley, projects that the Fed will begin reducing interest rates in the second quarter of 2019 and may do so up to six times, for a total of 150 basis points in reductions. Additionally, he believes that there will be at least four interest rate reductions of 25 basis points through 2025. In contrast, the futures market projects a 125 basis point rate reduction from the Fed in 2019. In contrast to the current Fed Funds rate of 5.33%, Knightley’s forecast rate reduction would reduce the effective Federal Funds rate to roughly 3.83% at the end of 2024 and to 2.83% at the end of 2025.
The labour market has clearly softened, but it is still strong, with weekly unemployment claims in the low 200,000s. Even though consumer spending is still healthy, it will encounter greater challenges in 2024 as real household disposable incomes begin to decline, credit card delinquencies increase, and student loan payments become more burdensome. The Fed‘s steady interest rate reductions are a positive sign that the economy will continue to be strong and that it won’t be necessary to immediately lower interest rates to zero percent, as is usually the case when the economy sharply slows down and goes into a recession.