Amid signs of an economic slowdown, ING Economics predicts that the US Federal Reserve will cut interest rates six times in 2024. 

According to Business Insider, ING Economics Chief International Economist James Knightley suggests that slowing inflation, a cooling job market, and a concerning outlook for consumer spending necessitate more rate cuts than the market anticipates. 

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NEW YORK, NY - JUNE 13: A logo and trading information for AT&T is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) June 13, 2018 in New York City.

Federal Reserve Seen to Cut Interest Rates in 2024

Knightley foresees the Federal Reserve initiating rate cuts in the second quarter of 2024, delivering up to six 25 basis point cuts, totaling 150 basis points. 

He expects these cuts to expand into 2025 with at least four additional 25 basis point reductions. In contrast, the future market expects a 125 basis point rate cut by the Fed next year.

If Knightley's projected rate cuts materialize, the effective Federal Funds rate will reach approximately 3.83% by the end of 2024 and 2.83% by the end of 2025, compared to the current Fed Funds rate of 5.33%. 

While these cuts will likely stimulate the economy over time, the impact may not instantly materialize as changes to the Fed Funds rate often exhibit a lag of 12-18 months before felt, according to Business Insider.

The gradual nature of these forecasted rate cuts is viewed positively, suggesting economic resilience without an immediate need for the Fed to slash rates to 0%, a typical response during a significant economic slowdown or recession.

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Signs of Cooling Trend

Knightley emphasizes that although the job market remains strong, signs of a cooling trend are evident. He points to the trend of higher continuing jobless claims "while initial claims remain low," indicating the firms' reluctance to fire workers and hire new ones.

Consumer spending faces 2024 challenges with weak household incomes, rising credit card delinquencies, and strained student loan payments. Knightley indicates that tight credit conditions may impede credit flow, and evidence suggests dwindling pandemic-era savings.

Despite a precarious economy, the Fed's success in lowering rates pre-recession may prevent a severe downturn. Yet, if conditions worsen significantly, strategists at UBS Investment Bank predict that the Federal Reserve will cut interest rates by 275 basis points next year in response to a recession.

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