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NWM Delay First Fed Cut To May, Still Aggressive Cuts Thereafter

US OUTLOOK/OPINION
  • NatWest still project a mild recession, but the recent slew of firmer than expected data sees them push the call back from 4Q23 to 2Q24. Whilst the timing is delayed, the GDP Q4/Q4 estimates haven’t meaningfully changed versus the earlier forecast.
  • “Given our new expectation for a recession to begin in Q2(24), which aligns much closer to what history suggests after reaching a peak in the funds rate, a rate cut in December is no longer our base case."
  • “We now look for the Fed to deliver the first rate cut at the April 30 - May 1, 2024 FOMC meeting. We still expect that the Fed will need to reduce rates at a much faster pace than currently expected by market participants, which seem to be subscribing to the soft landing scenario as the most likely outcome."
  • "We continue to look for aggressive sizes (50bps) for the bulk of the rate cuts in 2024 (May, June, July, September, and November) and a 25bp cut in December, pulling the target fed funds range down to 2.625% range by the end of 2024 (versus our earlier expectation of an end to the easing cycle at 2.625% in July 2024).”
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