Central Bank Projections: Rate Cuts Expected in 2024
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We now expect the Federal Reserve to begin rate cuts in the first quarter of 2024, with the European Central Bank and Bank of England following shortly thereafter.
Our projections for the major central banks
Federal Reserve
Comments from Federal Reserve officials indicate that while progress has been made, there is more work to do to return inflation to target. The June no-change decision was merely a slowing in the pace of hikes, with the Fed signalling that it sees the need for two additional 25bp interest rate increases before the end of the year.
A July rate rise looks virtually certain given inflation is above target and the jobs market remains tight, but we are not convinced the Bank will carry through with the second hike. The Fed acknowledges that goods price inflation is under control and housing costs will slow rapidly through the second half of 2023, but policymakers are focused on core services excluding housing, which remains hot. There are tentative encouraging signs, which we suspect will intensify as the lagged effects of previously implemented policy rate increases and tighter lending conditions bite.
With core CPI likely to be in the 2%-2.5% region by the first quarter of next year, the Fed may well be inclined to move policy from restrictive territory in the direction of neutral by March as the economy weakens.
