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FameEX Hot Topics | Banking Powerhouse ING Predicts Federal Reserve Will Lower Rates Starting in the Second Quarter
2023-12-05 16:22:30
ING, a global financial powerhouse, anticipates the Federal Reserve will commence interest rate reductions from the second quarter of the next year. James Knightley, ING’s chief international economist, forecasts a total of 150 basis points (bp) in rate cuts during 2024 and an additional 100bp in early 2025. His predictions are based on current U.S. economic trends, which he believes indicate no further need for Fed policy tightening.
Knightley recently published an analysis explaining his rationale. He points to U.S. economic indicators such as modest growth, subsiding inflation, and a slowing labor market as signs that align with what the Fed aims to achieve. According to Knightley, these factors collectively suggest that further tightening of monetary policy by the Fed may not be necessary, leading to his expectation of rate cuts starting from the second quarter onwards.
He particularly noted a rise in initial jobless claims to 218k last week, observing a trend toward higher continuing claims while initial claims remain low. This, he interprets as an indication that companies are hesitant to lay off employees but are also less keen on hiring new staff. This scenario represents a cooling, yet stable, labor market situation. Furthermore, Knightley discussed the broader moderation of inflation pressures. He referenced the October personal income and spending report, which showed a month-on-month increase of 0.2% in both incomes and the Core PCE deflator. This increase brings the annual rate of core inflation down to 3.5% from 3.7%, aligning with expectations. He pointed out that while spending is holding steady, the future outlook appears to be weakening. Highlighting concerns for the early part of 2024, Knightley warns of the challenges posed by declining real household disposable incomes. He notes rising credit card delinquencies and the added financial strain from student loan repayments on millions of households. These factors, he believes, could significantly impact growth in the early stages of 2024. Knightley's analysis reflects a nuanced understanding of the current economic landscape in the U.S., providing a reasoned basis for his forecast of the Federal Reserve's monetary policy direction in the coming year. His insights into the labor market, inflation trends, and consumer spending paint a comprehensive picture of the factors influencing the potential for rate cuts by the Fed. Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.
