UBS strategists Arend Kapteyn and Bhanu Baweja predict that the Federal Reserve will cut interest rates by 275 basis points in 2024, nearly four times more than what the market is currently expecting. They expect the benchmark federal funds rate to fall to between 2.5% and 2.75% by the end of 2024.
Their forecast is based on the expectation that inflation will continue to decline in 2024, and that the US economy will slip into a recession by the second quarter of 2024. They believe that the Fed will be forced to cut interest rates in order to avoid a deeper recession.
Other economists and banks have different forecasts for the Fed’s interest rate policy in 2024. For example, Goldman Sachs predicts that the Fed will cut interest rates starting in the fourth quarter of 2024, bringing rates to between 3.5% and 3.75% by mid-2026. Morgan Stanley predicts that the Fed will start cutting interest rates in June 2024, bringing the policy rate to 2.375% by the end of 2025.
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