ING analysts warn that a combination of weakening economic data and a weakening job market could lead to the Federal Reserve cutting interest rates three times in 2024, which would exceed both Fed projections and market expectations.
“The broad-based weakness in the ISM services index, coupled with an upward trend in unemployment claims, suggests that the pieces are falling into place regarding a Federal Reserve rate cut in September,” ING said. “The Fed signals only one rate cut this year, the consensus and market expect two, but we continue to see the risk of three rate cuts in 2024.”
Today’s figures, especially the “really dismal” ISM services index for June, which fell to a four-year low, paint a worrying picture of a cooling economy. “This is below all individual forecasts submitted to Bloomberg and is the worst outcome in four years, when we were still in the middle of the pandemic,” ING emphasizes.
The company emphasizes the importance of these indicators, noting: “These are historically the best leading indicators of changes in the economic cycle and suggest that downside growth risks are increasing.”
According to ING, these data, combined with slowing inflation, strengthen the arguments for an interest rate cut in September. “The Fed doesn’t want to cause a recession if it can avoid one,” they say, “and if the data allows them to shift policy to a slightly less restrictive stance, we think they will seize that opportunity.”
