published : 2023-11-28

Bank of America and Deutsch Bank Predict Interest Rate Cuts in 2024

BofA says the U.S. will achieve a 'soft landing,' while DB expects a 'mild recession'

Bank of America logo outside a branch in Washington, DC taken with Nikon D850

Bank of America Corp. and Deutsche Bank AG, two of the world's leading financial institutions, have released their outlooks for 2024, predicting that the Federal Reserve will implement interest rate cuts next year.

According to Bank of America's global research economists, the stage is set for central banks to trim rates in the second half of 2024, preventing a global recession. They expect inflation to gradually cool across the globe, providing the necessary conditions for a 'soft landing'. Candace Browning, head of BofA Global Research, acknowledges that downside risks may still exist, but she remains confident that central banks can successfully orchestrate a favorable outcome in 2024.

Candace Browning, head of BofA Global Research, discussing economic outlook taken with Canon EOS R5

Deutsche Bank, on the other hand, painted a slightly less optimistic picture. Their economists anticipate a 'mild recession' for the United States in the first half of 2024. This projection leads them to believe that the Fed will implement more aggressive rate cuts than what the current market expects. They predict an initial cut of 50 basis points at the Fed's June 2024 meeting, followed by additional cuts totaling 125 basis points throughout the rest of the year.

With the current Fed rate standing between 5.25% and 5.5%, Bank of America's outlook suggests a reduction to a range of 3.5% to 3.75% by the end of 2024. Interestingly, traders are currently pricing in a rate of 4.48% by December 2024, according to LSEG data.

Federal Reserve Chairman Jerome Powell speaking at the Economic Club of New York taken with Sony Alpha a7 III

The Federal Reserve's aggressive interest rate hikes over the past year were aimed at curbing inflation and slowing down the economy. In just 16 months, rates soared from near zero to above 5%, representing the most rapid tightening since the 1980s.

The timing for rate cuts in 2024 aligns between Bank of America and Deutsche Bank, but the latter suggests a more challenging economic environment. Both institutions will closely monitor the global economic conditions and central bank actions as we approach the critical year ahead.