The recent rapid economic growth in the final quarter of 2023 has prompted economists to suggest that the Federal Reserve will take a cautious approach to easing monetary policy.
According to Chris Low, chief economist at FHN Financial, the Fed will not make hasty rate cuts. In a note to clients on Thursday, Low stated that the Fed will proceed with rate cuts slowly and carefully.
Financial markets are confident that rate cuts will occur by May, but there is less certainty about a March cut, with chances estimated at just under 50%. While investors anticipate six rate cuts this year, the median forecast from the Fed is for three cuts. However, Atlanta Fed President Raphael Bostic believes there will only be two rate cuts.
Some economists who expect fewer rate cuts than the market predicts believe that the GDP data aligns with their projections.
The United States experienced strong growth of 3.3% annually in the fourth quarter, surpassing expectations of 2%. This marks the sixth consecutive quarter of above-average growth, which the Fed defines as a growth rate of 1.8% or higher.
Katherine Judge, senior economist at CIBC Capital Markets, emphasizes that the significant growth above the long-run average supports their expectation that the Fed will delay rate cuts until the third quarter.
On the other hand, Beth Ann Bovino, chief economist at U.S. Bank, believes that the Fed will approach the easing process more cautiously and views a March rate cut as less likely following the GDP data release. Bovino predicts four rate cuts this year.
Ken Kim, senior economist at KPMG Economics, also agrees that a rate cut by the Federal Reserve is more probable towards the end of the year.
In contrast, Kathy Bostjancic, chief economist at Nationwide, anticipates a slowdown in the economy throughout this year and a mild recession by mid-2024.