Fed to initiate quarterly 25 bps rate cuts in the May meeting – Danske Bank

Economists at Danske Bank expect core inflation to remain somewhat sticky, which allows the Fed to initiate rate cuts from May.

US economy on a structurally solid footing

Economic growth has moderated in the US during winter, but the pace still exceeded expectations. We foresee some further cooling in consumer demand going forward, but less than before. We lift our 2024 GDP forecast to 2.0% (from 1.1%) and adjust 2025 to 1.4% (from 1.6%).

Stronger growth means stickier inflation as well. We see headline inflation averaging 2.7% in 2024 (from 2.2%) and 2.5% in 2025 (unchanged) and core inflation at 3.2% in 2024 (from 2.7%) and 2.5% in 2025 (unchanged).

We expect the Fed to initiate quarterly 25 bps rate cuts in the May meeting.