Wall Street economists are anticipating rate cuts to start in the second quarter next year, as growth slows and inflation eases, according to the latest survey from the U.S. Securities Industry and Financial Markets Association (SIFMA).
The industry trade group’s biannual survey of chief U.S. economists found that most (87%) believe the U.S. Federal Reserve is done hiking interest rates and almost half (46.7%) expect a cut in the second quarter.
This forecast comes against the backdrop of an expected sharp slowing in economic growth. The median forecast for GDP growth in 2024 is just 0.7%, down from forecasts of 2.5% this year.
Unemployment is expected to rise next year as growth slows, and consumer inflation is also seen falling to 2.2% next year, down from 3.3% this year.
“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%,” said Dr. Lindsey Piegza, chief economist and managing director at Stifel Financial Corp. and chair of SIFMA’s Economic Advisory Roundtable, in the report.
However, despite the expected slowdown, the Fed may not be as quick to cut rates as the market hopes, she noted.
“Whether the U.S. economy is able to bypass a technical recession or experience just a downturn — or more simply an unwinding of economic activity with growth slowing to less than 1% — hardship will continue to mount as the Fed potentially raises rates further or, more importantly, continues to keep rates elevated for much longer than expected with rates likely staying well above neutral out beyond 2025,” Piegza said.