Fed: A pronounced cycle of interest rate cuts is unlikely over the next two years – Commerzbank
23.02.2024, 11:39

Fed: A pronounced cycle of interest rate cuts is unlikely over the next two years – Commerzbank

In the past, the Federal Reserve has often cut interest rates faster and more sharply. Economists at Commerzbank now expect fewer rate cuts by the Fed.

Five interest rate cuts of 25 bps each from June to the beginning of 2025

We expect the first interest rate hike at the FOMC meeting in June (previously: May). However, the easing of monetary policy is likely to be significantly less than we had previously expected due to the lack of a recession. We no longer expect eight rate cuts, but five (three in 2024 and two in 2025). This is because it should gradually become clear in the second half of the year that the last mile of the fight against inflation will be more difficult than expected. 

At 4.25% at the end of 2025, the key interest rate would still be noticeably higher than the Fed's estimates for the long-term neutral key interest rate (2.5% according to the FOMC's December projection). The interest rate moves we are forecasting should not be seen as a full rate cut cycle, but rather as an adjustment to lower inflation in order to avoid monetary policy having too strong a braking effect on the economy.

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