Deutsche Bank Bold Prediction: Deutsche Bank economists foresee a challenging economic landscape in the United States, projecting a mild recession in the first half of 2024. As part of their outlook report, the economists anticipate an assertive response from the Federal Reserve, predicting a total of 175 basis points in rate cuts throughout 2024. This projection deviates significantly from current market expectations, creating a dynamic scenario for monetary policy.
The economists at Deutsche Bank anticipate a proactive approach from the Federal Reserve to address the economic headwinds. With the current Fed rate standing at 5.25%-5.5%, the projected 175 basis points in rate cuts would bring the rate down to 3.5%-3.75% by the end of 2024. This contrasts with traders’ expectations, who are currently pricing in a rate of 4.48% by December 2024, according to LSEG data.
Deutsche Bank’s projection aligns with expectations of two quarters of negative economic growth in the first half of 2024. The anticipated “soft patch” in the economy is forecasted to prompt a more aggressive cutting profile starting in the middle of the year. This economic slowdown is expected to lead to a significant rise in the unemployment rate, reaching 4.6% by mid-2024 from the current 3.9%.
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Deutsche Bank expects an initial 50 basis points cut at the Fed’s June 2024 meeting, followed by an additional 125 basis points of cuts over the remainder of the year. The timing and sequence of these rate cuts reflect the bank’s strategy to address the projected economic challenges and stimulate recovery. The economists emphasize that the economic weakness is anticipated to alleviate inflationary pressures, providing a multifaceted approach to managing the economic landscape.
While the U.S. economy has resiliently navigated previous rate hikes, the projected recession introduces a new dimension. Deutsche Bank acknowledges the potential for adjustments in the Fed’s approach based on evolving economic conditions. The prospect of a less aggressive rate-cutting scenario remains contingent on the economy firming up in the latter part of the year.
As uncertainties loom, the Deutsche Bank economists emphasize the need for a nimble and responsive monetary policy to navigate the intricacies of the economic landscape in 2024.