Economists on Wall Street are projecting a commencement of rate cuts in the second quarter of the upcoming year, anticipating a slowdown in growth and a decrease in inflation. This insight is derived from the latest survey conducted by the U.S. Securities Industry and Financial Markets Association (SIFMA), a biannual assessment of chief U.S. economists within the industry.
The survey reveals that a substantial majority (87%) of these economists believe that the U.S. Federal Reserve has concluded its series of interest rate hikes, with almost half (46.7%) expecting a rate cut in the second quarter. This prediction coincides with expectations of a significant deceleration in economic growth, with the median forecast for GDP growth in 2024 dropping to a mere 0.7%, contrasting sharply with earlier projections of 2.5% for the current year.
In tandem with the economic slowdown, projections indicate a rise in unemployment next year, coupled with a decrease in consumer inflation to 2.2%, down from 3.3% in the present year.
My take – The U.S. economy is poised to remain positive but lose significant momentum from the third quarter’s outsized rise, likely slowing to less than 2% in the fourth quarter and slowing further into 2024, with the risk of recession still very real at 55-60%.
However, it is more likely than not that the Federal Reserve will not respond as swiftly to cut rates as the market anticipates. The potential for an extended period of elevated rates, with rates possibly staying well above neutral beyond 2025, could instigate increased economic challenges.