Financial markets have started 2024 with a rebound in interest rates as central banks have pushed back against expectations of near-term rate cuts. Economists at Nordea keep their baseline forecasts largely unchanged but see risks towards earlier ECB and later Fed cuts.

Is the Fed close to cutting or not?

We leave our baseline financial forecasts largely unchanged at this time as we find that the recent developments do not justify any bigger changes.

We continue to forecast 100 bps of Fed cuts this year, with the first move in March, but this is more due to the Fed’s dovish signals at the December meeting rather than how we see the US economy developing. Risks are tilted towards a later start and fewer cuts.

The ECB has argued almost in unison that no near-term rate cuts should be expected. We still see the first move in June, 25 bps, and quarterly 25 bps cuts from there onwards, but risks are towards an earlier start and steeper cuts.