Deutsche Bank Economists Say the Fed Will Create More Inflation in 2024
Deutsche Bank economists say the Federal Reserve will create more inflation in 2024.
OK, that’s not exactly what they said. But that is the implication of their latest forecast.
The Deutsche Bank analyst forecast that the Fed will cut rates by 175 basis points in 2024 in response to a “mild” recession. That would drive the Federal Reserve funds rate down to between 3.5% and 3.75%.
This loosening monetary policy, by definition, would create more inflation.
The Fed currently has interest rates set at between 5.25% and 5.5%.
Most mainstream analysts now think the central bank will cut rates next year, but not as steeply as Deutsche Bank economists.
The dominant narrative today is that the Fed has successfully beaten down price inflation. A cooler-than-expected CPI report for October reinforced this notion. With inflation on the run, mainstream analysts think that the Fed has initiated its last hike and will pivot to rate cuts next year to guide the economy to a “soft landing.” Even before the CPI data release markets were pricing in 75 basis points of rate decreases in 2024.
Many mainstream analysts and financial news network pundits have taken a recession completely off the table. But Deutsche Bank senior US economist Brett Ryan told Reuters he expects the US economy to hit a “soft patch” that will lead to a “more aggressive cutting profile.”
Ryan said he expects this economic weakness to further ease inflationary pressure.
The Problems With the Forecast
There are several problems with the Deutsche Bank projections, and the entire mainstream narrative more generally.
In the first place, the death of inflation is greatly exaggerated. No matter how you slice and dice the data, none of the numbers come close to the Fed’s 2% target. Core CPI is still double that number.
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