An economist who recently forecast 9 rate cuts now predicts only 2 as growth picks up

• The strong US economy has caused one economist to pull a U-turn on his 2024 forecast.
• Macquarie economist Danny Doyle said he now expects just two interest rate cuts this year and no recession in 2024 or 2025.
• Doyle had previously expected as many as nine interest rate cuts just two months ago.

The strength of the US economy continues to surprise economists following the better-than-expected January jobs report.

One such economist is Danny Doyle, Macquarie's head of economics, who pulled a U-turn on Thursday when he slashed his 2024 interest rate forecast to just two rate cuts of 25 basis points a piece. That's fewer than the Federal Reserve's own forecast of three interest rate cuts this year.

As recently as December, Doyle had expected the Federal Reserve to launch as many as nine interest rate cuts this year due to his expectation that the economy would fall into a recession.

That's no longer the case.

"Recent data have become more supportive of US growth in coming quarters. While the outlook remains uncertain and things could change in the months ahead, this shifts the probabilities in our assessment relative to our previous update in December, which was for a mild recession," Doyle said.

The latest data that has showcased a strong US economy includes the 353,000 jobs that were added to the economy in January, the stronger-than-expected GDP growth rate of 3.3% in the fourth quarter of 2023, and the Atlanta Fed's first-quarter GDPNow estimate of 3.4%.

With no recession in sight, Doyle expects the unemployment rate to remain steady at 3.7% this year instead of his prior forecast suggesting a jump to as high as 5.2%.

In this scenario, the Federal Reserve would have considerable flexibility in delaying its interest rate cuts to the second half of the year, and it would be in its best interest to wait to ensure that a strong economy doesn't reignite inflation.

"In our forecast, a higher policy rate is required amidst more resilient growth to keep inflation on track to roughly return to the Fed's target," Doyle said.

Doyle expects the Fed's first interest rate cut to happen at the July FOMC meeting, while the market expects the first interest rate cut to happen in May, according to the CME FedWatch Tool.

"To be clear, we still believe in the business cycle and risks remain — the economy isn't completely out of the woods. However, based on data in recent months, we no longer feel it is appropriate to make a mild recession our base case in 2024 or 2025," Doyle said.