Deutsche Bank's Fed expectations

Deutsche Bank economists say the Fed will cut rates by 175 basis points next year if there is a U.S. recession. Economists at Deutsche Bank predicted on Monday that the Fed would cut rates more sharply than markets are currently pricing in if a mild U.S. recession arrives in the first half of next year. In their outlook report, Deutsche Bank economists projected 175 basis points of rate cuts in 2024. The Fed’s current rate of 5.25%-5.5% would allow it to fall to 3.5%-3.75% by the end of the year. Investors are currently pricing in a 4.48% rate by December 2024, according to LSEG data. Deutsche Bank expects two quarters of negative economic growth in the first half of 2024, leading to a “fairly steep rise” in the unemployment rate from 3.9% now to 4.6% by the middle of next year, the senior managing director Brett Ryan said. “We see the economy going into a soft period in the first half of the year, leading to a steeper cut profile from mid-year,” Ryan said. At the same time, the bank expects the economic weakness to “ease inflationary pressures.” In a report released on Monday, the bank said it expects a “mild recession” in the first half of 2024. Deutsche Bank expects an initial 50 basis point cut when the Fed meets in June 2024, followed by an additional 125 basis points of cuts over the rest of the year. The U.S. economy so far appears to be defying recession forecasts, despite the Fed raising interest rates by 525 basis points since March 2022. “If things get back on track, the Fed will be cutting much less,” Ryan said.