Fed to cut rates by around 100 bps in the second half of 2023 – ABN Amro
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The overheated US economy is gradually cooling off. Economists at ABN Amro expect the fed funds rate upper bound to hit 4.5% by December, but still expect rate cuts in 2023.
“The Fed tilted further in a hawkish direction at the September FOMC meeting, with the upper bound of the fed funds rate projected to reach 4.5% by the end of the year. The projections also showed policy staying restrictive throughout the forecast horizon, with no rate cuts seen until 2024, and policy still above neutral even in 2025. Despite this, we continue to think the Fed is likely to modestly cut rates in H2 2023.”
“We expect a steeper rise in unemployment than the FOMC projects, to c.5% by end-2023. Given the lags with which monetary policy affects the economy – the labour market being the last domino to fall – we think the Fed will be confident that the economy is cooling sufficiently by the middle of next year.”
“We continue to expect around 100 bps in rate cuts in H2 2023, although the higher level from which the Fed would be cutting means we are now likely to end 2023 at 3.5% in the upper bound of the fed funds rate, up from our previous 3% expectation.”
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