Bank of America, Deutsch Bank predict interest rate cuts in 2024

Bank of America and Deutsch Bank both released outlooks Monday predicting the Federal Reserve will implement interest rate cuts next year.

BofA said its global research economists expect inflation to gradually cool across the globe, allowing central banks to trim rates in the second half of 2024 and avert a global recession.

“2023 defied almost everyone’s expectations: recessions that never came, rate cuts that didn’t materialize, bond markets that didn’t bounce, except in short-lived, vicious spurts, and rising equities that pained most investors who remained cautiously underweight,” said Candace Browning, head of BofA Global Research. 

“We expect 2024 to be the year when central banks can successfully orchestrate a soft landing, though recognize that downside risks may outnumber the upside ones.”

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Michael Gapen, the bank’s head of U.S. economics, said he expects the Fed to make its first rate cut in June, with the central bank cutting 25 basis points per quarter.

The 2024 outlook from Deutsch Bank’s economists predicted cuts will begin at the same time, but the picture they painted was a little less rosy. 

The German bank expects the U.S. to enter a “mild recession” in the first half of 2024, leading the Fed to slash rates more aggressively than markets are currently pricing in.

DB expects an initial cut of 50 basis points at the Fed’s June 2024 meeting, followed by 125 bps of additional cuts over the rest of the year.

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With the Fed rate currently at 5.25%-5.5%, that would reduce the rate to 3.5%-3.75% by the end of the year. Traders are currently pricing in a rate of 4.48% by December 2024, according LSEG data.

The Fed has raised interest rates sharply over the past year, approving 11 rate increases in the hopes of crushing inflation and cooling the economy. In the span of just 16 months, interest rates surged from near zero to above 5%, the fastest pace of tightening since the 1980s.

Earlier this month, Fed Chair Jerome Powell signaled more rate hikes are possible, as inflation remains up 3.7% compared to the same time a year ago — far lower than its 9.1% peak in June 2022, but still well above the 2% target rate.

FOX Business’ Megan Henney and Reuters contributed to this report.