ING analysts warn that a combination of weakening economic data and a softening jobs market could lead the Federal Reserve to cut interest rates three times in 2024, exceeding both the Fed's projections and market expectations.
"Broad-based weakness in the ISM services index coupled with an upward trend in jobless claims suggests that the pieces are falling into place regarding a September interest rate cut from the Federal Reserve," ING states. "The Fed is signalling just one cut this year, the consensus and market expects two, but we continue to see the risk of three rate cuts in 2024."
Today's data, particularly the "truly dismal" ISM services index for June which dropped to a four-year low, paints a concerning picture of a cooling economy. "This is below all the individual forecasts submitted to Bloomberg and is the worst outcome for four years when we were still in the middle of the pandemic," ING highlights.
The firm emphasizes the significance of these indicators, noting, "Historically these have been the best lead indicators for changes in the economic cycle and suggest downside growth risks are intensifying."
This data, combined with slowing inflation, strengthens the case for a September rate cut, according to ING. "The Fed doesn't want to cause a recession if it can avoid it," they state, "and if the data starts allowing them to move policy to a slightly less restrictive position we think they will take that opportunity."