Source: Golden Ten Data
The American Bankers Association believes that policy interest rates are too high, and potential economic weakness is expected to cool down inflation, so there is room for the Federal Reserve to cut interest rates.
Top economists at major US banks predict that although inflation is unlikely to slow quickly in 2024, the Federal Reserve will still cut interest rates three times this year, and the first rate cut will be carried out in June.
The American Bankers Association (ABA)'s latest forecast shows that the US economy will remain strong, but growth may be slower than last year.
According to economists' forecasts, the US gross domestic product (GDP) growth rate will fall to 1.7% in the fourth quarter of 2024, compared to 3.1% in 2023.
The ABA also said that by 2024, it is expected that the number of new jobs added each month will also be reduced from more than 250,000 in 2023 to less than 150,000 per month on average.
Economists believe that a slight weakening of the US economy should further push inflation down, but the decline will not be as fast as previously anticipated.
The ABA forecast shows that the year-on-year growth rate of the personal consumer expenditure price index (PCE) will be 2.4% by the end of 2024, close to the current level. The year-on-year growth rate of core PCE, which excludes food and energy prices, is expected to fall from 2.8% in February to 2.3% at the end of the year. The Federal Reserve sees the core PCE as the best predictor of future inflation.
The Federal Reserve's goal is to reduce the inflation rate to 2% per year, similar to the average of the decade before the outbreak of the pandemic. The ABA anticipates that the Federal Reserve will not meet its inflation target until early 2026.
However, ABA economists believe that current US interest rates are too high, so the Federal Reserve has room to lower interest rates.
The Federal Reserve raised its key short-term policy interest rate to the highest level in more than 20 years in 2022 and 2023 in an attempt to curb high inflation. The current level of interest rates is enough to dampen the economy.
Simona Mocuta (Simona Mocuta), chairman of the ABA Group of Economists and chief economist at State Street Global Investment Management, said, “Don't think that the Fed cut interest rates to make policies more relaxed; they are trying to make policies less tight. That's a huge difference.”
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