FX.co ★ Fed indicates several cuts in 2024

Not so long ago, analysts at Wall Street were focused on the Fed’s last meeting this year. They had expected the regulator to maintain the key rate unchanged and announce cuts for the next year. The expectations met reality as the Federal Reserve kept the benchmark rate at the level of 5.25%–5.5% per annum. However, the situation may change at any moment, thus forcing the regulator to revise its actions.

In 2024, markets anticipate a key rate cut after a two-year rapid hiking cycle. Notably, the scenario will become possible in case of moderately high inflation and stable economic development.

Experts at Wall Street suppose that next year, the Federal Reserve will have enough room for maneuver. In this light, they suggest several forecasts.

Thus, currency strategists at UBS expect the regulator to lower the interest rate 11 times by 25 basis points at each meeting. As a result, it will be cut by as much as 275 basis points in 2024 as the world's largest economy tips into recession. The first cut may take place in March as a reaction to the anticipated recession in the second and third quarters of 2024. A slowdown in both core and headline inflation is another pressure factor.

Meanwhile, analysts at Macquarie foresee a 225-basis-point cut in 2024 because of the high interest rate and the Fed's quantitative tightening policy. For reference, the regulator uses quantitative tightening to normalize its balance sheet. The Fed’s decision will also be supported by a long-lasting decline in inflation.

ING Economics issued quite a modest forecast for the key rate changes in the upcoming year. The company foresees that the regulator will lower the benchmark rate by only 150 basis points. Such a small decline could be explained by slackening inflation, the US labor market cooling, and a drop in consumer spending. These factors confirm that it is of no use to continue monetary policy tightening.

Currency strategists at Barclays considerably downgraded their outlook for the key rate. The bank predicts that the Fed will resort to only a 100-basis-point cut amid a stable economic situation in 2024. In 2025, it may lower the benchmark rate by another 100 basis points.