Wells Fargo economists predict that the United States will face intensifying economic vulnerabilities in 2024, with growth expected to decline materially from 2023. The financial institution anticipates aggressive interest rate cuts by the Federal Reserve in response to the challenging economic environment.
Interest rates are expected to fall to 3.75% by December 2024, according to Wells Fargo, with a further reduction to 3.25% by Q1 2025, amounting to cumulatively 225 basis point cut from current levels.
Wells Fargo's rate projections deviate significantly from current market pricing, which foresee the Federal Funds rate at 4.55% in December 2024 and 4.28% in March 2025. They are also in stark contrasts with the Federal Reserve's latest economic projections of a 5.1% rate by the end of 2024.
2024 Growth Seen At 0.8% As High Interest Rates Take A Toll On Businesses, Consumers
"Even in the event the economy avoids recession, growth in 2024 likely will be subpar, at best, due to the elevated level of real interest rates," Jay H. Bryson's team of Wells Fargo economists stated.
Wells Fargo estimates a modest 0.8% GDP growth for the U.S. in 2024, marking a significant drop from the 2.3% growth forecasted for this year. Inflation is expected to average around 2.5%.
"The battle against inflation has not yet been decisively won," Wells Fargo wrote. The Federal Reserve is done with rate hikes, but an easing policy may not occur until mid-2024.
The bank observes that businesses have reduced their new capital investments due to heightened economic uncertainty and the increased cost of borrowing.
Meanwhile, consumers are struggling and relying on credit to sustain robust spending growth. This has resulted in an uptick in delinquencies for credit card and auto loans, reaching levels reminiscent of the period before the pandemic.
Wells Fargo also warns that in the commercial real estate market, storm clouds hover above the office sector and the multifamily sector. The rise of remote work has led many firms to recalibrate their office space needs, which will likely keep pressure on the office market for some time. Mortgage rates are expected to trend lower, as interest rates and bond yields drop.
Wells Fargo's Predictions On US Dollar, Bonds
The U.S. dollar, which is monitored through the Invesco DB USD Index Bullish Fund ETF
Bond yields are expected to decline in line with the reduction in interest rates. Wells Fargo estimates the 10-year yield to 3.50% by the end of 2024, down from the current 4.61%.
If these bond market forecasts materialize as expected, it bodes well for the performance of the US 10-Year Treasury Note ETF
