Danske Bank: Expects the Fed to cut interest rates by 25 basis points, with a more dovish forward guidance

Danske Bank expects the Federal Reserve to cut interest rates by 25 basis points, with no change in the pace of QT expected. The new dot plot will indicate a total of 3 cuts of 25bp each in 2024, followed by 6 cuts of 25bp each in 2025. It is expected that there will be no policy rate changes in 2026, with the final rate at 3.00-3.25%. Inflation forecasts for 2024-2025 are expected to be slightly lowered, while unemployment rate forecasts for 2024-2026 are expected to be slightly raised. Powell will convey a series of rate cut messages and remain open to larger rate cuts, even if this is not the baseline expectation. A 25 basis point rate cut with moderate forward guidance may lead to a relatively moderate market reaction, but risks lean towards a stronger US dollar and higher short-term US dollar yields