Top economists at major U.S. banks predict that even though inflation is unlikely to slow quickly after 2024, the Federal Reserve will still cut interest rates three times this year, with the first cut coming in June.

The latest forecast from the American Bankers Association (ABA) shows that the U.S. economy will remain strong, but the pace of growth may slow down from last year.

According to economists' forecasts, U.S. gross domestic product (GDP) growth will fall to 1.7% in the fourth quarter of 2024, compared with 3.1% in 2023.

ABA also said that by 2024, the number of new jobs per month is expected to decrease from more than 250,000 in 2023 to an average of less than 150,000 per month.

Economists believe that a slight softening in the U.S. economy should further push inflation down, but not as quickly as previously expected.

ABA's forecast shows that the year-on-year growth rate of the personal consumption expenditures price index (PCE) will be 2.4% by the end of 2024, close to current levels. Year-on-year growth in core PCE, which excludes food and energy prices, is expected to fall to 2.3% by the end of the year from 2.8% in February. The Fed views core PCE as the best predictor of future inflation.

The Fed's goal is to reduce inflation to 2% per year, similar to its average level in the decade before the pandemic. ABA does not expect the Fed to achieve its inflation target until early 2026.

However, ABA economists believe that current U.S. interest rates are too high, so the Federal Reserve has room to lower interest rates.

The Federal Reserve will raise its key short-term policy rate to the highest level in more than 20 years in 2022 and 2023 to try to curb high inflation. The current level of interest rates is enough to depress the economy.

Simona Mocuta, chair of the ABA Economist Group and chief economist at State Street Global Advisors, said, “Don’t think that the Fed is cutting rates to make policy more accommodative, they are trying to make policy less tight. That's a huge difference."

Article forwarded from: Golden Ten Data