Concerns over Rising Unemployment
The US economy is steadily weakening, and experts predict that the unemployment rate will continue to rise in the coming year. Pantheon Macroeconomics warns that the Federal Reserve’s rate cuts will be more aggressive than initially anticipated. According to the research firm, rate cuts could surpass 75 basis points, coinciding with the jobless rate surpassing 5%.
Gloomy Forecast Contradicts Central Bank Projections
Pantheon’s chief economist, Ian Shepherdson, emphasizes that the economy will be even weaker than current forecasts indicate. Despite the resilience shown so far, the full impact of rate cuts on the economy may take up to 18 months to materialize. Consequently, Shepherdson estimates that the unemployment rate will peak around 5.5% in early 2025, up from the current 3.7%. He also believes that the rate cuts initiated by the Federal Open Market Committee (FOMC) will exceed 75 basis points.
Market Reacts to Anticipated Rate Cuts
Market participants are already bracing for more substantial interest rate cuts than those projected by the Fed. According to the CME FedWatch tool, there is a 64% chance that rates could fall below 4% by the end of next year. This suggests investors are expecting more than a full percentage point of rate cuts. Concerns are growing as steeper rate cuts often indicate impending economic problems. UBS economists argue that a full-blown recession may hit the economy by mid-2024, potentially triggering around 275 basis points of rate cuts. Deutsche Bank also warns of further challenges ahead. These gloomy projections call for increased vigilance and preparedness in the face of potential economic headwinds.