With the 'tightening cycle running its course', the Fed will now begin cutting interest rates in 2024

The Federal Reserve has finished raising interest rates and will likely cut them by about one percentage point next year, according to chief economists at some of North America's largest banks.

While the United States is likely to avoid a recession, economic growth looks set to slow markedly in coming quarters, pushing up unemployment while lowering inflation, the latest forecast from the American Bankers Association's Economic Advisory Committee shows.

“Given both demonstrated and expected progress on inflation, most committee members believe the Fed's tightening cycle has run its course,” said Simone Mokuta, chair of the 14-member panel and chief economist at State Street Global Advisors.

The US central bank is expected to keep interest rates on hold at its meeting next week, although investors are divided on whether it will follow that up with a rate hike later this year.

The ABA advisory committee includes economists from JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. His forecasts are regularly presented to Fed Chairman Jerome Powell and other members of the central bank's board in Washington.

The committee's average forecast is for economic growth to slow to less than 1% annualized over the next three quarters in response to the Fed's past interest rate hikes and tightening credit conditions.

Unemployment is forecast to rise to 4.4% by the end of next year from 3.8% in August, while consumer price inflation is forecast to ease to 2.2% from 3.2% in July.

"The committee's view is that the chances of a soft landing will improve significantly in the short term," Mokuta told reporters via Zoom. “But at the same time, there remain many concerns about the sustainability of this exceptional resilience that the economy has shown so far.”

The committee estimates the likelihood of a recession next year to be just under 50%.