Deutsche Bank: Fed to cut rates by 175 basis points next year

Economists at Deutsche Bank predicted in a forecast on Monday that the Fed will cut interest rates more aggressively than markets are currently pricing in, as a mild U.S. recession is expected to arrive in the first half of next year.

In their outlook report, Deutsche Bank economists projected that interest rate cuts in 2024 would total 175 basis points.

With the Fed funds rate currently at 5.25-5.5 percent, this would bring the rate down to 3.5-3.75 percent by the end of the year. According to LSEG data, investors are currently pricing in a rate of 4.48 percent as of December 2024.

Deutsche Bank senior executive Brett Ryan stated that the bank expects two quarters of negative economic growth in the first half of 2024, which would lead to a "fairly sharp increase" in the unemployment rate from its current 3.9 percent to 4.6 percent by the middle of next year. U.S. economist Ryan said, "We see the economy entering a soft patch in the first half of the year, which leads to a more aggressive cutting profile starting mid-year."

Ryan also said the bank expects economic weakness to "ease inflationary pressures." In the report released on Monday, the bank stated it expects a "mild recession" in the first half of 2024.

Deutsche Bank expects the Fed to make an initial 50 basis point cut at its June 2024 meeting, followed by an additional 125 basis points in cuts for the remainder of the year.

Despite the Fed raising interest rates by 525 basis points since March 2022, the U.S. economy appears to be defying recession forecasts so far. Ryan noted, "If things turn around, the Fed will make far fewer cuts."

News Source: 12punto