Financial markets have initiated 2024 with a resurgence in interest rates as central banks counter expectations of imminent rate cuts. Nordea economists maintain their primary forecasts with minimal alterations, identifying potential risks toward earlier cuts by the ECB and delayed cuts by the Fed.

Regarding the Federal Reserve (Fed), Nordea leaves its baseline financial forecasts largely intact, noting that recent developments do not warrant significant adjustments. Their current projection involves anticipating 100 basis points (bps) of Fed cuts in the year, with the initial move expected in March. However, this projection is influenced more by the dovish signals from the Fed’s December meeting than by the perceived trajectory of the US economy. Nordea acknowledges that risks lean towards a postponed start and a reduction in the number of cuts.

In contrast, the European Central Bank (ECB) has presented a unified stance against anticipating immediate rate cuts. Nordea continues to forecast the first move in June, a 25 bps adjustment, followed by quarterly 25 bps cuts thereafter. However, they highlight risks pointing towards an earlier initiation of cuts and a more pronounced reduction in interest rates by the ECB.