The Fed is expected to continuously cut interest rates from next year.

Many US banks believe that the Fed will cut interest rates steadily from mid-2024, when the economy shows many signs of weakening.

Economists at Morgan Stanley Bank have just forecasted that the US Federal Reserve (Fed) will start cutting interest rates in series from June 2024. Each reduction could be 25 basis points (0.25%), bringing the reference interest rate in the US to around 2.375% by the end of 2025.

Morgan Stanley also predicts that the US will not fall into recession, but will need to ease policy further due to the weakening economy. They believe that unemployment will peak at 4.3% in 2025, higher than the Fed's estimate of 4.1%. Growth and inflation will also be slower than officials' official forecasts.

Ellen Zentner, chief economist at Morgan Stanley, said: "High interest rates over a long period of time will drag down economic activity. We still maintain our view that the US will have a soft landing, but weak growth will keep recession fears from disappearing."

Goldman Sachs believes that the Fed will not cut interest rates until the fourth quarter of 2024. They predict that after that, the Fed will cut interest rates every quarter until mid-2026. This is equivalent to a reduction of 175 basis points (1.75%), bringing the reference interest rate to 3.5-3.75%. Goldman Sachs believes that the Fed will maintain interest rates at a relatively high level.

Economists at Bank of America predict the Fed will raise rates one more time, followed by three consecutive 25 basis point cuts starting in the second quarter of 2024.

In its September forecast, the Fed said it would cut interest rates only once a year, bringing the benchmark rate to 5.125% by the last quarter of next year and 3.9% by the end of 2025. Fed officials will update this forecast at next month's meeting.

The Fed kept interest rates unchanged for the second straight month in November, at 5.25% - a 25-year high. They had previously raised rates 11 times since the start of 2022 to curb inflation.

Inflation in the US is still significantly higher than the Fed's 2% target. The core personal expenditures price index (PCI) - the Fed's preferred inflation measure - increased 3.7% in September. In February 2022, the index was up 5.3%.

Ha Thu (according to Investing)

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